Automatic Conversion Clause
An automatic conversion clause forces the conversion of preferred shares into common shares upon the occurrence of specific events, such as an IPO or an acquisition. This clause is common in early-stage investments to ensure that preferred shareholders convert their stakes when a company hits certain milestones, aligning investor and company interests.
Key Takeaways
- Forces conversion of preferred shares into common shares.
- Triggered by specific events like IPOs, acquisitions, or other milestones.
- Aligns the interests of investors and companies.
- Common in early-stage financing agreements.
