Capital structure clause: Copy, customize, and use instantly
Introduction
A capital structure clause outlines the components of a company’s capital, including equity and debt, and the conditions under which changes to the structure may occur. It ensures that both parties understand the ownership interests, financial obligations, and any rights or restrictions associated with the company's capital.
Below are templates for capital structure clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
General capital structure clause
This variation applies when the company’s capital structure is defined broadly.
[Party Name] agrees to maintain a capital structure consisting of [X]% equity and [Y]% debt, with [specified terms] regarding any future changes. Any material changes to the capital structure will require the prior approval of [Other Party Name], including any increase in debt or dilution of equity.
Debt funding clause
This variation applies when the company intends to use debt as part of its capital structure.
[Party Name] agrees that [Company Name] may raise capital through debt financing, subject to the terms outlined in this agreement. Any debt issuance will be subject to the approval of [Other Party Name] if it exceeds [specified threshold] in amount or changes the leverage ratio beyond [specified limit].
Equity issuance clause
This variation applies when the company can issue additional equity.
[Party Name] agrees that the company may issue additional equity securities as necessary to raise capital. However, any issuance of equity that would result in the dilution of existing shareholders' ownership by more than [X]% will require the prior consent of [Other Party Name].
Capital call clause
This variation applies when capital calls are included as part of the agreement.
[Party Name] agrees to a capital call provision, under which [Other Party Name] may require [Party Name] to contribute additional capital up to [specified amount] if the company’s liquidity falls below [specified threshold] or if additional funding is required for operations or growth.
Change of control clause
This variation applies when changes in control of the company may impact its capital structure.
[Party Name] agrees that any change of control, including but not limited to mergers, acquisitions, or significant share transfers, will require prior notice and approval by [Other Party Name]. Such a change may affect the company’s capital structure and financial stability, and the agreement’s terms may need to be renegotiated.
Dividend distribution clause
This variation applies when the company can distribute dividends based on its capital structure.
[Party Name] agrees that dividends will be distributed from the company’s profits in accordance with its capital structure, with priority given to senior debt holders. The company will not distribute any dividends unless all outstanding debt obligations are satisfied or provision has been made for them.
Redemption of securities clause
This variation applies when the company is allowed to redeem its securities.
[Party Name] agrees that the company may redeem its equity or debt securities in accordance with the terms of the issued securities. Any redemption will be subject to the approval of [Other Party Name] if it significantly alters the capital structure or the balance between equity and debt.
Preferred stock clause
This variation applies when preferred stock is issued as part of the company’s capital structure.
[Party Name] agrees to issue preferred stock to raise capital, with preferences and rights specified in this agreement. The preferred stock will be subject to the terms outlined in the company’s bylaws, including dividends, liquidation preferences, and voting rights, which may differ from common stockholders.
Debt-to-equity ratio clause
This variation applies when the company’s debt-to-equity ratio is specified.
[Party Name] agrees to maintain a debt-to-equity ratio of no greater than [X]% at all times during the term of this agreement. If the ratio exceeds this limit, [Party Name] will take immediate corrective action, which may include raising additional equity or reducing debt.
Capital structure adjustment clause
This variation applies when adjustments to the capital structure are made in response to financial circumstances.
[Party Name] agrees that the company’s capital structure may be adjusted periodically based on financial performance, market conditions, or operational needs. Any adjustments to equity, debt, or other capital instruments will be made in accordance with the company’s financial strategy and will require the approval of [Other Party Name] if they materially affect the terms of this agreement.
Subordination clause
This variation applies when some debt is subordinated to others in the capital structure.
[Party Name] agrees to the subordination of certain debts, meaning that some debt holders will have priority over others in the event of liquidation. The terms of subordination, including the ranking of debt, interest rates, and repayment schedules, are outlined in this agreement and will apply to any future borrowing by the company.
Ownership structure clause
This variation applies when the company’s ownership structure is specified, including the breakdown of shareholders.
[Party Name] agrees to maintain an ownership structure of [X]% common shares, [Y]% preferred shares, and [Z]% debt instruments. The ownership structure will not be altered without the prior consent of [Other Party Name], unless such a change is necessary for the company’s strategic growth.
Capital structure review clause
This variation applies when the capital structure is subject to periodic review.
[Party Name] agrees to conduct an annual review of its capital structure, including its equity, debt, and other financial instruments. This review will assess the company’s financial health, growth strategy, and capital needs, and will result in recommendations for adjustments to the capital structure as necessary.
Cross-collateralization clause
This variation applies when assets are cross-collateralized to secure the company’s debts.
[Party Name] agrees that the company’s assets may be cross-collateralized to secure both equity and debt interests. In the event of a default, the collateral securing the debts will be used to satisfy outstanding obligations, with priority given to senior debt holders as specified in the company’s financing arrangements.
Change in capital structure notice clause
This variation applies when changes to the capital structure must be disclosed.
[Party Name] agrees to notify [Other Party Name] of any material changes to the capital structure, including the issuance of new equity, the taking on of additional debt, or the modification of existing debt or equity terms. Such notice must be given within [X] days of the change taking effect.
Investor consent clause
This variation applies when investor consent is needed for changes to the capital structure.
[Party Name] agrees that any changes to the capital structure, including the issuance of new equity or debt, will require the consent of existing investors, particularly if such changes would affect their ownership stake, rights, or privileges.
Payment prioritization clause
This variation applies when payments are prioritized within the capital structure.
[Party Name] agrees to prioritize the payment of debt obligations over equity distributions, ensuring that all outstanding debts are settled before any dividends or distributions are made to shareholders. This prioritization applies to all debt instruments, including senior and subordinated debt.
Capital contribution clause
This variation applies when additional capital contributions are required from shareholders or investors.
[Party Name] agrees that, if required, shareholders or investors will make additional capital contributions to the company to support its financial health. The terms and timing of such contributions will be determined by the company’s needs and will be communicated to shareholders in advance.
Convertible debt clause
This variation applies when the company issues convertible debt.
[Party Name] agrees to issue convertible debt securities that may be converted into equity at the discretion of the debt holders. The terms of conversion, including the conversion rate and time frame, are outlined in this agreement and are subject to approval by [Other Party Name].
Seniority of debt clause
This variation applies when debt is issued with varying levels of seniority.
[Party Name] agrees to issue debt with specified levels of seniority. Senior debt will be repaid before subordinated debt in the event of liquidation or restructuring. The terms of each debt issuance, including interest rates and repayment schedules, will be clearly defined in this agreement.
Financial covenants clause
This variation applies when the company must adhere to financial covenants related to its capital structure.
[Party Name] agrees to comply with financial covenants set forth by lenders or investors, including maintaining a minimum equity ratio, a maximum debt-to-equity ratio, and other financial performance metrics. Failure to comply with these covenants may trigger penalties or defaults under this agreement.
Capital structure amendment clause
This variation applies when the capital structure can be amended under certain conditions.
[Party Name] agrees that amendments to the capital structure, including changes in equity ownership, debt levels, or the issuance of new securities, may be made by mutual consent of both parties, subject to the approval of [Other Party Name]. Any amendments must be documented in writing.
Debt restructuring clause
This variation applies when the company may restructure its debt.
[Party Name] agrees that, in the event of financial difficulties, the company may restructure its debt to ensure continued operations. Any debt restructuring plan will require the approval of [Other Party Name] and may involve changes to the payment terms, interest rates, or debt maturity schedules.
Capital call process clause
This variation applies when a capital call process is established.
[Party Name] agrees to implement a capital call process whereby additional capital can be requested from investors or shareholders as needed. The process for making a capital call, including notice requirements and payment deadlines, will be clearly outlined in the agreement.
Liquidation preference clause
This variation applies when liquidation preferences are set for different classes of equity.
[Party Name] agrees to establish a liquidation preference for preferred shareholders, ensuring that they receive their investment back before common shareholders in the event of liquidation. The terms of the liquidation preference, including the order of payout and any multipliers, will be clearly defined in this agreement.
Debt repayment schedule clause
This variation applies when the company has a defined debt repayment schedule.
[Party Name] agrees to a structured debt repayment schedule that outlines the timing and amounts of debt repayments throughout the term of this agreement. Payments will be made according to the terms outlined, ensuring that all obligations are met in a timely manner.
Preferred return clause
This variation applies when preferred equity holders are entitled to a preferred return.
[Party Name] agrees to provide preferred equity holders with a preferred return on their investment, which will be paid before any distributions to common equity holders. The preferred return rate and terms will be outlined in this agreement and will be paid on a regular basis.
Equity buyback clause
This variation applies when the company may buy back its equity.
[Party Name] agrees that the company may, at its discretion, repurchase equity from shareholders under certain conditions. The terms of any equity buyback, including the price and timing, will be mutually agreed upon by the parties involved.
Debt issuance limit clause
This variation applies when there are limits on the amount of debt the company can issue.
[Party Name] agrees to limit the issuance of debt to no more than [X]% of the company’s equity value, unless otherwise agreed upon by [Other Party Name]. This limit is set to ensure that the company maintains a balanced capital structure and avoids excessive leverage.
Exit strategy clause
This variation applies when an exit strategy is defined regarding capital structure.
[Party Name] agrees to implement an exit strategy for the company that may involve a sale, merger, or public offering. The strategy will consider the company’s capital structure and provide for the distribution of proceeds in a manner that respects the seniority of debt holders and the preferences of equity holders.
Capital structure reporting clause
This variation applies when the company must report on its capital structure.
[Party Name] agrees to provide [Other Party Name] with quarterly reports detailing the company’s capital structure, including any changes in equity, debt, or ownership. These reports will provide transparency regarding the company’s financial standing and its ability to meet obligations.
Capital structure allocation clause
This variation applies when the allocation of equity and debt is specified.
[Party Name] agrees that the company’s capital structure will be allocated with [X]% in equity and [Y]% in debt. The allocation ratio may be adjusted in the future, but any material changes will require the consent of both parties involved.
Junior debt clause
This variation applies when the company issues junior debt with lower priority.
[Party Name] agrees that any junior debt issued under this agreement will have lower priority in repayment compared to senior debt. In the event of liquidation or restructuring, junior debt holders will only be repaid after senior debt obligations are fully satisfied.
Equity conversion clause
This variation applies when debt can be converted into equity.
[Party Name] agrees that holders of debt securities issued by the company have the right to convert their debt into equity at a conversion rate determined by the terms of the agreement. This option will be available during the specified conversion period.
Capital contribution requirement clause
This variation applies when additional capital contributions are required from investors.
[Party Name] agrees that shareholders may be required to make additional capital contributions to the company if necessary to meet funding needs or ensure financial stability. These contributions will be made on a pro-rata basis according to each shareholder’s ownership percentage.
Debt refinancing clause
This variation applies when the company can refinance its existing debt.
[Party Name] agrees to the refinancing of existing debt if more favorable terms are available. Any refinancing will be subject to the approval of [Other Party Name], and the refinancing terms must align with the company’s overall financial strategy.
Capital raising clause
This variation applies when the company is authorized to raise capital.
[Party Name] agrees that the company may raise additional capital through various means, including equity offerings, debt issuance, or private placements. The method and amount of capital raised will be determined by the company’s financial needs and strategy.
Debt acceleration clause
This variation applies when debt obligations can be accelerated under certain conditions.
[Party Name] agrees that in the event of a material breach of the agreement or other default conditions, the company’s debt obligations may be accelerated, requiring immediate repayment of outstanding debt, as specified in the debt agreement.
Ownership dilution clause
This variation applies when the company’s issuance of new equity could dilute existing shareholders' ownership.
[Party Name] agrees that the issuance of new equity or the conversion of debt into equity may dilute the ownership interest of existing shareholders. The company will notify shareholders in advance of any such issuance or conversion.
Equity class distinction clause
This variation applies when there are different classes of equity with different rights.
[Party Name] agrees that the company’s capital structure includes multiple classes of equity, with different rights, privileges, and preferences. These distinctions, including dividend rights and voting power, are outlined in the company’s bylaws.
Equity redemption clause
This variation applies when the company can redeem its equity under certain circumstances.
[Party Name] agrees that the company may redeem certain classes of equity securities under specific conditions, including the repurchase of outstanding shares at a price determined by the terms outlined in this agreement.
Debt covenants clause
This variation applies when there are specific covenants attached to the debt issued.
[Party Name] agrees that any debt issued by the company will be subject to covenants designed to maintain financial discipline. These covenants may include restrictions on further borrowing, capital expenditures, and dividend payments, ensuring the company’s financial stability.
Debt interest rate adjustment clause
This variation applies when the interest rate on debt can be adjusted.
[Party Name] agrees that the interest rate on any variable-rate debt issued by the company may be adjusted periodically based on prevailing market conditions or agreed-upon benchmarks, subject to the terms of the debt agreement.
Preferred equity liquidation preference clause
This variation applies when preferred equity holders have liquidation preferences.
[Party Name] agrees that preferred equity holders will have a liquidation preference, meaning they will receive their investment back before common equity holders in the event of liquidation. This preference will be paid out in accordance with the terms specified in the preferred stock agreement.
Capital allocation clause
This variation applies when capital raised is allocated for specific purposes.
[Party Name] agrees that capital raised through equity or debt offerings will be allocated as specified in this agreement. The allocation may include funding for operational expansion, debt reduction, or strategic acquisitions, as determined by the company’s needs.
Capital structure modification clause
This variation applies when modifications to the capital structure are allowed under certain conditions.
[Party Name] agrees that modifications to the company’s capital structure, including changes in the amount of equity or debt, may occur with the approval of both parties. Any significant structural changes will require a review of the agreement’s terms.
Seniority of payments clause
This variation applies when payments are prioritized in the company’s capital structure.
[Party Name] agrees that in the event of liquidation or restructuring, payments to creditors and equity holders will follow the seniority structure outlined in the company’s capital structure. Senior debt holders will be paid first, followed by subordinated debt holders, and then equity holders.
Capital preservation clause
This variation applies when the company must preserve capital.
[Party Name] agrees to implement measures that prioritize the preservation of the company’s capital, including limiting discretionary spending, avoiding excessive debt issuance, and maintaining adequate reserves for operational needs.
Equity issuance approval clause
This variation applies when equity issuance requires approval.
[Party Name] agrees that any issuance of new equity shares, whether common or preferred, will require the prior approval of [Other Party Name]. The approval process will ensure that any equity issuance aligns with the company’s financial strategy and capital needs.
Proportional equity ownership clause
This variation applies when ownership of equity must be proportional.
[Party Name] agrees that equity ownership in the company will remain proportional to each shareholder’s contribution, unless otherwise agreed upon. Any new issuance of equity will be offered to existing shareholders in proportion to their current ownership interests.
Capital structure notification clause
This variation applies when changes to the capital structure must be communicated.
[Party Name] agrees to notify [Other Party Name] of any changes to the capital structure, including new equity or debt issuance, within [X] days of the change taking place. This notification will provide details of the changes and their impact on the company’s financial position.
Debt restructuring consent clause
This variation applies when debt restructuring requires consent from other parties.
[Party Name] agrees that any restructuring of the company’s existing debt, including changes to interest rates, maturity dates, or repayment terms, will require the consent of [Other Party Name]. Such restructuring must be aligned with the company’s long-term financial goals.
Debt service coverage ratio clause
This variation applies when a minimum debt service coverage ratio is required.
[Party Name] agrees to maintain a debt service coverage ratio (DSCR) of no less than [X] throughout the term of the agreement. This ratio will be calculated based on the company’s ability to generate sufficient income to cover its debt obligations.
Preemptive rights clause
This variation applies when shareholders have the right to purchase new equity.
[Party Name] agrees to grant existing shareholders preemptive rights to purchase any new equity issued by the company. This ensures that shareholders can maintain their proportional ownership in the company when new shares are issued.
Conversion feature clause
This variation applies when debt can be converted into equity.
[Party Name] agrees that the company will issue convertible debt securities, allowing debt holders the option to convert their debt into equity at a conversion price determined by the terms of the agreement. The conversion rights will be exercisable during the specified conversion period.
Capital structure review clause
This variation applies when the capital structure is reviewed periodically.
[Party Name] agrees to conduct an annual review of the company’s capital structure to assess the adequacy of its equity and debt levels. The review will ensure that the company maintains a healthy balance between equity and debt and that any adjustments are made to optimize financial performance.
Preferred dividend clause
This variation applies when preferred shareholders receive dividends before common shareholders.
[Party Name] agrees that preferred shareholders will receive dividends before common shareholders. The preferred dividend rate and payment schedule will be determined according to the terms set forth in the preferred stock agreement, and will be paid out of the company’s profits.
Capital expenditure limitation clause
This variation applies when capital expenditures are limited.
[Party Name] agrees to limit capital expenditures to no more than [X]% of the company’s annual revenue, unless approved by [Other Party Name]. This limitation is designed to ensure that capital investments are made prudently and in alignment with the company’s strategic goals.
New investor clause
This variation applies when a new investor joins the company.
[Party Name] agrees that if a new investor joins the company, their equity contribution will be proportionally integrated into the capital structure. The terms of the new investor’s participation, including equity ownership and rights, will be negotiated in accordance with the company’s financial strategy.
Debt maturity schedule clause
This variation applies when the company’s debt has a defined maturity schedule.
[Party Name] agrees to a debt maturity schedule that specifies the timing and amounts of debt repayments throughout the term of the agreement. The schedule will ensure that the company meets its obligations in a timely manner without overburdening its cash flow.
Divestiture clause
This variation applies when the company may divest certain assets or business units.
[Party Name] agrees that the company may divest certain assets or business units to raise capital or restructure its operations. Any divestiture that impacts the company’s capital structure or ownership interests will require the prior approval of [Other Party Name].
Equity buyback threshold clause
This variation applies when there is a specified threshold for equity buybacks.
[Party Name] agrees that the company will not repurchase its own equity unless the repurchase amount exceeds [X]% of outstanding shares. Any equity buyback exceeding this threshold will require approval from [Other Party Name].
Prepayment penalty clause
This variation applies when a prepayment penalty is charged for early debt repayment.
[Party Name] agrees that the company may incur a prepayment penalty if it repays any debt before the scheduled maturity date. The penalty will be based on the terms specified in the debt agreement and will be designed to compensate creditors for the early termination of debt obligations.
Leverage ratio target clause
This variation applies when a leverage ratio target is set.
[Party Name] agrees to maintain a leverage ratio of no greater than [X] throughout the term of the agreement. This ratio will be regularly assessed to ensure that the company is not over-leveraged and that it can meet its debt obligations while maintaining financial stability.
Capital raising cap clause
This variation applies when the company is limited in the amount of capital it can raise.
[Party Name] agrees that the company will raise no more than [X] amount in capital during the term of this agreement. Any capital raising efforts that exceed this cap will require approval from [Other Party Name].
Equity redemption priority clause
This variation applies when the order of equity redemption is specified.
[Party Name] agrees that, in the event of equity redemption, the company will first redeem shares held by preferred equity holders, followed by common shareholders, according to the liquidation preferences outlined in this agreement.
Debt covenant waiver clause
This variation applies when debt covenants can be waived.
[Party Name] agrees that if any debt covenants are breached, the company may request a waiver from [Other Party Name] or any relevant lender. The waiver will be granted at the sole discretion of the creditor, subject to the terms and conditions of the agreement.
Rights offering clause
This variation applies when the company offers rights to existing shareholders to purchase new equity.
[Party Name] agrees that the company may issue rights to existing shareholders, allowing them to purchase new equity on a pro-rata basis in accordance with their current ownership percentage. The rights offering will be subject to the terms outlined in this agreement.
Equity dilution protection clause
This variation applies when there is protection against dilution of equity.
[Party Name] agrees that, in the event of a new equity issuance, existing equity holders will be offered the opportunity to purchase additional shares in order to maintain their proportional ownership and avoid dilution.
Convertible bond clause
This variation applies when bonds issued by the company can be converted into equity.
[Party Name] agrees to issue convertible bonds, which can be converted into equity at a conversion rate determined by the terms of the bond agreement. The bonds will be convertible within a specified period after issuance.
Minimum equity ownership clause
This variation applies when the company requires a minimum level of equity ownership.
[Party Name] agrees that [Other Party Name] will maintain a minimum equity ownership of [X]% throughout the term of this agreement. If ownership falls below this threshold, [Other Party Name] may exercise its rights under this agreement, including the ability to trigger a buyout or other remedies.
Debt-to-equity swap clause
This variation applies when debt can be exchanged for equity.
[Party Name] agrees that the company may enter into debt-to-equity swap agreements with creditors, allowing for the conversion of outstanding debt into equity. The terms of the swap, including the exchange ratio, will be negotiated between the company and the creditors.
Preferred stock dividend clause
This variation applies when preferred stockholders are entitled to dividends.
[Party Name] agrees that preferred stockholders will be entitled to dividends at a rate of [X]% annually, which will be paid before any dividends to common stockholders. The dividend will be paid from the company’s net income, subject to available funds.
Senior debt ratio clause
This variation applies when the company must maintain a certain senior debt ratio.
[Party Name] agrees to maintain a senior debt ratio of no more than [X]% of its total debt at all times during the term of this agreement. This ratio ensures that the company maintains an adequate level of senior debt relative to its total liabilities.
Debt repayment priority clause
This variation applies when there is a defined repayment order for debts.
[Party Name] agrees that the company will repay debts in the following order: first, senior debt obligations; second, subordinated debt; and finally, any remaining liabilities. This hierarchy ensures that the company prioritizes its most critical financial obligations.
Capital structure disclosure clause
This variation applies when the company must disclose its capital structure to stakeholders.
[Party Name] agrees to disclose its capital structure, including all outstanding equity, debt, and convertible securities, to [Other Party Name] and any other relevant stakeholders on an annual basis. This disclosure will ensure transparency regarding the company’s financial position.
Debt conversion feature clause
This variation applies when debt issued can be converted into equity.
[Party Name] agrees to issue debt securities with a conversion feature, allowing the debt holders to convert their debt into equity at a specified conversion rate. The conversion terms, including timing and price, will be outlined in the debt agreement.
Equity dilution calculation clause
This variation applies when the impact of equity dilution is calculated.
[Party Name] agrees that any new issuance of equity will result in dilution of existing shareholders’ ownership interests, and that the dilution will be calculated based on the number of shares issued and the pre-issuance capital structure.
Debt subordination agreement clause
This variation applies when a subordination agreement is executed for certain debts.
[Party Name] agrees to enter into a subordination agreement with respect to any subordinated debt issued under this agreement. This subordination will specify the ranking of the debt in relation to senior debt and will ensure that senior debt is repaid first in case of liquidation.
Capital structure reset clause
This variation applies when the company’s capital structure is reset under certain conditions.
[Party Name] agrees that if the company’s capital structure deviates significantly from the agreed terms, the structure may be reset to reflect the original equity and debt proportions. This reset will occur after [specified period] or after the occurrence of certain triggering events.
Stock buyback program clause
This variation applies when the company implements a stock buyback program.
[Party Name] agrees that the company may implement a stock buyback program to repurchase its own shares from the open market or directly from shareholders. The terms of the buyback, including timing, pricing, and volume, will be determined by the board of directors.
Debt refinancing limit clause
This variation applies when the company can refinance its debt but within certain limits.
[Party Name] agrees that the company may refinance its existing debt, provided that the new terms, including interest rates and repayment schedules, do not exceed [X]% of the original debt balance. Any refinancing beyond this limit will require approval from [Other Party Name].
Capital structure rebalancing clause
This variation applies when the company needs to rebalance its capital structure.
[Party Name] agrees that the company may rebalance its capital structure by adjusting the ratio of debt to equity in response to changing market conditions or financial performance. Any rebalancing will be done in a way that does not unduly affect existing shareholder rights or obligations.
Subordinated loan clause
This variation applies when the company issues subordinated loans.
[Party Name] agrees to issue subordinated loans, which will be ranked below senior debt in terms of repayment priority. The terms of these loans, including interest rates and maturity dates, will be agreed upon by [Other Party Name] and are subject to approval.
Investor exit clause
This variation applies when an investor’s exit strategy is defined.
[Party Name] agrees to allow investors to exit their investments under the terms outlined in this agreement. The exit may involve the sale of equity, a buyout, or a public offering, depending on the company’s financial condition and strategic direction.
Equity allocation clause
This variation applies when equity is allocated among shareholders or investors.
[Party Name] agrees to allocate equity among shareholders in accordance with the terms outlined in the company’s shareholder agreement. The allocation will be based on the number of shares purchased and the ownership percentage of each shareholder.
Debt refinancing approval clause
This variation applies when debt refinancing requires approval.
[Party Name] agrees that any refinancing of the company’s debt will require the approval of [Other Party Name]. The refinancing terms will be reviewed to ensure that the company remains in a stable financial position and that the debt is repaid in a timely manner.
Convertible equity clause
This variation applies when equity can be converted into debt under specific terms.
[Party Name] agrees that certain equity securities issued by the company may be converted into debt at the discretion of the company’s board of directors. The conversion terms, including the interest rate and repayment period, will be specified in the agreement.
Minimum shareholder equity clause
This variation applies when the company must maintain a minimum level of shareholder equity.
[Party Name] agrees to maintain a minimum level of shareholder equity of [X] dollars at all times. If the equity falls below this threshold, [Party Name] will take corrective action, including raising additional capital or reducing liabilities.
Seniority of claims clause
This variation applies when the seniority of claims on the company’s assets is specified.
[Party Name] agrees that in the event of liquidation, the claims of senior creditors will be settled before those of subordinated creditors or equity holders. This hierarchy ensures that senior debt is prioritized for repayment over other claims.
Equity contribution threshold clause
This variation applies when there is a minimum threshold for equity contributions.
[Party Name] agrees that any equity contributions to the company must exceed a minimum threshold of [X] dollars. Contributions below this threshold will not be accepted, unless otherwise approved by [Other Party Name].
Borrowing limit clause
This variation applies when the company is restricted from borrowing beyond a certain amount.
[Party Name] agrees that the company will not borrow more than [X] dollars without prior approval from [Other Party Name]. Any borrowing in excess of this amount will require renegotiation of the terms of the agreement.
Debt maturity extension clause
This variation applies when the company has the option to extend the maturity of its debt.
[Party Name] agrees that the company may extend the maturity date of its outstanding debt, provided that the terms of the extension, including the interest rate and repayment schedule, are agreed upon by both parties.
Investment return clause
This variation applies when investors are entitled to a specified return on their investment.
[Party Name] agrees to provide investors with a return on their investment based on the agreed-upon equity structure. The return will be calculated based on the company’s performance and will be paid out annually or upon the occurrence of a liquidation event.
Issuance of new debt clause
This variation applies when the company can issue new debt.
[Party Name] agrees that the company may issue new debt, provided that the total debt issued does not exceed [X]% of the company’s equity. Any new debt issuance will be subject to the approval of [Other Party Name].
Shareholder rights in capital changes clause
This variation applies when shareholders’ rights are protected during capital changes.
[Party Name] agrees to ensure that shareholders’ rights are protected in the event of a change in the company’s capital structure. This includes providing existing shareholders with the option to purchase additional shares or securities to maintain their proportional ownership.
Debt repayment plan clause
This variation applies when a detailed plan for debt repayment is established.
[Party Name] agrees to implement a debt repayment plan that outlines the timing and amounts of debt repayments to ensure that the company remains on track to meet its financial obligations. This plan will be reviewed periodically to accommodate changes in the company’s financial situation.
Debt refinancing option clause
This variation applies when the company has the option to refinance its debt.
[Party Name] agrees that the company has the option to refinance its debt at a future date. Any refinancing will be done in a manner that does not exceed the company’s agreed-upon debt limits and will require approval from [Other Party Name].
Additional equity issuance clause
This variation applies when the company may issue additional equity shares.
[Party Name] agrees that the company may issue additional equity shares to raise capital, provided that such issuance does not dilute existing shareholders by more than [X]%. Any issuance beyond this threshold will require approval from [Other Party Name].
Debt repayment acceleration clause
This variation applies when debt repayment may be accelerated under specific conditions.
[Party Name] agrees that in the event of a breach of financial covenants or a default on any debt obligations, the company may accelerate the repayment of outstanding debt, requiring immediate repayment of principal and accrued interest.
Equity conversion rights clause
This variation applies when debt can be converted into equity at the creditor’s discretion.
[Party Name] agrees to grant creditors the right to convert their outstanding debt into equity at a conversion rate to be determined at the time of conversion. This conversion right can be exercised during the term of the debt agreement, subject to the terms set forth.
Minimum capital reserves clause
This variation applies when the company is required to maintain minimum capital reserves.
[Party Name] agrees to maintain minimum capital reserves of [X] dollars, ensuring the company has sufficient liquidity to meet its ongoing operational needs and any unforeseen liabilities.
Change in control capital structure clause
This variation applies when capital structure changes due to a change in control.
[Party Name] agrees that if there is a change in control of the company, the capital structure may be modified to reflect the new ownership structure. [Other Party Name] will be consulted regarding any changes to ensure that their interests are protected.
Convertible equity issuance clause
This variation applies when the company issues convertible equity.
[Party Name] agrees to issue convertible equity that can be converted into common equity at a specified conversion rate. The conversion terms, including the timing and process, will be outlined in the agreement and will be subject to approval.
Debt subordination priority clause
This variation applies when subordinated debt is issued with specific repayment priority.
[Party Name] agrees that the company will issue subordinated debt, which will be repaid only after all senior debts have been settled. The terms of this subordination, including repayment schedules and interest rates, will be specified in the debt agreement.
Capital infusion clause
This variation applies when capital infusion is required to maintain operations.
[Party Name] agrees that if the company’s liquidity falls below a specified threshold, additional capital will be infused by the shareholders to maintain the operations and avoid defaulting on debt obligations.
Equity swap clause
This variation applies when equity is swapped for debt or other financial instruments.
[Party Name] agrees to allow equity swaps, where shareholders may exchange their equity holdings for debt instruments or other financial products based on mutually agreed-upon terms. The swap will be subject to both parties’ approval.
Preferred shareholder priority clause
This variation applies when preferred shareholders have priority in dividend distribution.
[Party Name] agrees that preferred shareholders will receive their dividends before any dividends are distributed to common shareholders. The preferred dividend rate and payment schedule will be determined as outlined in the shareholder agreement.
Debt restructuring approval clause
This variation applies when debt restructuring requires prior approval.
[Party Name] agrees that any proposed restructuring of the company’s debt will require the approval of [Other Party Name]. This includes changes to repayment schedules, interest rates, or other key terms of existing debt agreements.
Debt maturity extension clause
This variation applies when the maturity date for debt can be extended.
[Party Name] agrees that the company may extend the maturity date of any existing debt obligations, subject to the approval of [Other Party Name]. The terms of the extension, including any changes to interest rates, will be agreed upon by both parties.
Preferred equity liquidation clause
This variation applies when preferred equity holders are prioritized in liquidation.
[Party Name] agrees that in the event of liquidation, preferred equity holders will receive their investment back, including any accrued dividends, before any distribution is made to common equity holders. The terms of liquidation preferences will be specified.
Capital reorganization clause
This variation applies when the company undergoes capital reorganization.
[Party Name] agrees to undertake a capital reorganization to restructure the company’s debt and equity in accordance with the financial strategy and operational goals. The terms of the reorganization will be outlined and require approval from all relevant parties.
Minimum equity ratio clause
This variation applies when the company must maintain a minimum equity ratio.
[Party Name] agrees to maintain a minimum equity ratio of [X]%, ensuring the company’s financial stability and ability to meet its obligations. The ratio will be assessed quarterly and adjustments will be made if necessary.
Debt conversion into equity clause
This variation applies when debt can be converted into equity at a predetermined rate.
[Party Name] agrees to issue debt with an option for creditors to convert their debt into equity at a fixed conversion rate. The conversion can be triggered by the creditor or at the company’s discretion, as specified in the debt agreement.
Proportional ownership clause
This variation applies when ownership stakes in the company must remain proportional.
[Party Name] agrees that the issuance of new equity will be offered on a pro-rata basis to existing shareholders, maintaining proportional ownership unless explicitly waived by [Other Party Name].
Leverage ratio covenant clause
This variation applies when a maximum leverage ratio is imposed.
[Party Name] agrees to maintain a leverage ratio of no greater than [X]%, calculated as the company’s total debt divided by its equity. If this ratio exceeds the specified limit, [Party Name] will take corrective action to bring it back within the agreed threshold.
Equity issuance approval rights clause
This variation applies when shareholders must approve equity issuances.
[Party Name] agrees that the issuance of any new equity shares will require the prior approval of the existing shareholders. Approval will be based on the percentage of ownership held by each shareholder and their pro-rata entitlement to the new equity.
Capital restructuring consultation clause
This variation applies when capital restructuring requires consultation with stakeholders.
[Party Name] agrees to consult with key stakeholders, including [Other Party Name], prior to any major restructuring of the company’s capital, including changes in equity or debt composition. This consultation will ensure that the interests of all parties are considered in the restructuring process.
Minimum shareholder equity requirement clause
This variation applies when shareholders must maintain a minimum equity stake.
[Party Name] agrees that shareholders must maintain a minimum equity stake of [X]% throughout the term of the agreement. Failure to maintain this equity stake may result in the shareholder losing certain rights or being required to make additional contributions to maintain ownership levels.
Capital gain distribution clause
This variation applies when capital gains are distributed to shareholders.
[Party Name] agrees that any capital gains realized by the company will be distributed to shareholders in proportion to their equity holdings. The distribution will occur after any debts or liabilities are paid, and in accordance with the terms of the shareholder agreement.
Debt restructuring consent clause
This variation applies when restructuring debt requires consent from other parties.
[Party Name] agrees that any restructuring of the company’s existing debt, including changes to interest rates, payment terms, or the amount of debt, will require the consent of [Other Party Name]. The terms of the restructuring will be negotiated between both parties.
Profit sharing clause
This variation applies when profits are shared based on equity ownership.
[Party Name] agrees to distribute profits among shareholders based on their equity ownership percentage. This distribution will occur annually or at other intervals as specified in the company’s financial plan.
Convertible note issuance clause
This variation applies when the company issues convertible notes.
[Party Name] agrees to issue convertible notes that can be converted into equity at a later date. The conversion terms, including the conversion rate, timing, and conditions, will be defined in the note issuance agreement.
Equity buyback rights clause
This variation applies when shareholders have rights to buy back equity.
[Party Name] agrees that shareholders will have the right to buy back equity issued by the company at a specified price and under specified conditions. These buyback rights will be available to all shareholders and can be exercised at their discretion.
Funding cap clause
This variation applies when the company’s funding is capped at a specific amount.
[Party Name] agrees to limit the total amount of funding raised through equity and debt to [X] dollars. Any attempt to exceed this funding cap will require the approval of [Other Party Name] and must be in line with the company’s strategic goals.
Debt service reserve clause
This variation applies when the company must maintain a debt service reserve.
[Party Name] agrees to maintain a debt service reserve fund equal to [X]% of the total outstanding debt. This reserve will be used exclusively to service the company’s debt obligations and will be replenished as needed.
Issuance of preferred shares clause
This variation applies when the company issues preferred shares.
[Party Name] agrees to issue preferred shares with rights to dividends, liquidation preferences, and other terms as set forth in the preferred stock agreement. Preferred shareholders will be entitled to dividends before common shareholders.
Equity issuance exemption clause
This variation applies when certain equity issuances are exempt from prior approval.
[Party Name] agrees that equity issuances that result in an increase of less than [X]% of total equity will not require the prior approval of existing shareholders. Any issuance beyond this threshold will require approval from [Other Party Name].
Debt buyback clause
This variation applies when the company can buy back its own debt.
[Party Name] agrees that the company may buy back its outstanding debt securities at any time before the maturity date. The terms and price for the buyback will be determined at the time of purchase.
Debt service coverage ratio covenant clause
This variation applies when a debt service coverage ratio is required.
[Party Name] agrees to maintain a debt service coverage ratio of no less than [X] times, calculated as the company’s net income divided by its debt service obligations. If this ratio falls below the required level, [Party Name] will take corrective measures to improve liquidity.
Authorized capital clause
This variation applies when the company specifies the amount of authorized capital.
[Party Name] agrees that the company’s authorized capital will consist of [X] shares of common stock and [Y] shares of preferred stock. Any changes to the authorized capital will require approval from [Other Party Name] and the company’s shareholders.
Equity dilution rights clause
This variation applies when existing shareholders have rights to prevent dilution.
[Party Name] agrees to grant existing shareholders the right to purchase additional shares of the company to prevent dilution of their ownership stake during future equity offerings.
Preferred return on equity clause
This variation applies when preferred equity holders receive a preferred return on their investment.
[Party Name] agrees to pay preferred equity holders a preferred return of [X]% on their invested capital before any distributions are made to common shareholders.
Refinance approval clause
This variation applies when refinancing terms require approval from stakeholders.
[Party Name] agrees that any refinancing of existing debt, including changes to interest rates, repayment terms, or amounts, will require the approval of [Other Party Name], as specified in the financing agreement.
Capital allocation adjustment clause
This variation applies when capital allocations can be adjusted.
[Party Name] agrees that the capital allocation, including debt and equity proportions, may be adjusted to reflect the company’s strategic goals or operational needs. Any such adjustments will require approval from [Other Party Name].
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.