Equity financing clause: Copy, customize, and use instantly
Introduction
An equity financing clause outlines the terms under which a company raises capital by issuing equity (shares of stock) to investors. This clause specifies the rights and obligations of both the company and the investors regarding the issuance of new shares, such as the pricing, conditions, and the method of raising funds.
Below are templates for equity financing clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard equity financing clause
This version outlines basic terms for equity financing.
The [Company] agrees to raise capital through an equity financing round, whereby it will issue [X] shares of common stock to investors at an agreed-upon price per share. The financing shall be completed by [Date], and the proceeds will be used for [purpose of funds raised, e.g., business expansion, product development].
Equity financing clause with right of first refusal
This version grants a right of first refusal.
In the event of an equity financing, the [Investor] shall have the right of first refusal to purchase shares at the same price and on the same terms as those offered to other investors, in order to maintain their percentage ownership in the [Company].
Equity financing clause with preemptive rights
This version includes preemptive rights.
The [Investor] shall have preemptive rights to purchase additional shares of the [Company] in any future equity financing, in proportion to their current ownership, to ensure they can maintain their relative ownership interest.
Equity financing clause with anti-dilution protection
This version includes anti-dilution protection.
The [Investor] shall be protected against dilution in the event of a subsequent equity financing at a price lower than the price paid by the [Investor] in this financing round, through an anti-dilution provision that adjusts their ownership percentage accordingly.
Equity financing clause with convertible notes
This version allows for convertible notes in the financing.
The [Company] may issue convertible notes as part of the equity financing, which will convert into equity at a later date under terms specified in a separate agreement, at a conversion price determined by the next round of financing.
Equity financing clause with price protection
This version provides price protection to investors.
In the event that the [Company] issues shares in the next equity financing round at a price lower than the price per share paid by the [Investor] in this financing round, the [Investor] shall receive additional shares to adjust their ownership and protect against dilution.
Equity financing clause with terms for future rounds
This version outlines terms for future financing rounds.
The [Company] agrees to complete future equity financing rounds in which investors, including the [Investor], will be invited to participate at a price per share that is determined by the valuation of the [Company] at the time of the financing round.
Equity financing clause with right to participate in follow-up funding rounds
This version grants the right to participate in future rounds.
The [Investor] shall have the right to participate in any subsequent equity financing rounds, on the same terms as those offered to new investors, to preserve their percentage ownership in the [Company].
Equity financing clause with minimum funding requirement
This version includes a minimum funding requirement.
The [Company] agrees to raise a minimum of [X] amount of capital in the equity financing round, and if the full amount is not raised, the financing round will be canceled or postponed.
Equity financing clause with restrictions on transfer of shares
This version restricts the transfer of shares issued in the financing round.
Any shares issued to the [Investor] during this equity financing round shall not be transferable for a period of [X] years, except as provided in the [Company]’s bylaws or under applicable securities laws.
Equity financing clause with board approval
This version requires board approval.
The [Company] shall seek prior approval from the Board of Directors before conducting any equity financing. The terms of the financing, including the price per share and the number of shares to be issued, must be approved by a majority of the Board.
Equity financing clause with use of proceeds
This version specifies the use of proceeds.
The proceeds from the equity financing shall be used exclusively for the following purposes: [list purposes, e.g., working capital, expansion, R&D], and the [Company] shall provide regular reports to investors on the use of funds.
Equity financing clause with preference for existing investors
This version gives preference to existing investors.
Existing investors in the [Company] shall have the right to participate in the equity financing before new investors, to maintain their ownership percentage in the [Company].
Equity financing clause with restriction on future financings
This version restricts future financings.
The [Company] agrees not to issue any additional equity securities for a period of [X] years following the equity financing, unless approved by the [Investor], except for shares issued under an employee stock option plan.
Equity financing clause with right to approve terms
This version grants the right to approve terms.
The [Investor] shall have the right to approve the key terms and conditions of the equity financing round, including the price per share, number of shares issued, and the strategic objectives of the financing.
Equity financing clause with right to nominate director
This version grants a right to nominate a director.
Following the equity financing round, the [Investor] shall have the right to nominate one individual to serve as a director on the [Company]’s Board of Directors, subject to the approval of the [Company]’s other shareholders.
Equity financing clause with closing conditions
This version includes closing conditions.
The equity financing shall be subject to the following closing conditions: [list conditions, e.g., legal compliance, regulatory approvals, investor commitments], and the financing will close only if all conditions are met.
Equity financing clause with lock-up period
This version includes a lock-up period.
The [Investor] agrees that shares acquired through the equity financing round shall not be sold, transferred, or otherwise disposed of for a period of [X] months following the closing of the financing.
Equity financing clause with seniority rights
This version includes seniority rights.
The shares issued in the equity financing round shall have seniority over any other outstanding shares with respect to liquidation preferences, dividends, or other distributions of the [Company].
Equity financing clause with cap on valuation
This version includes a valuation cap.
The valuation of the [Company] for purposes of the equity financing round shall not exceed [X] amount, and any future financing rounds shall use the same valuation or a lower valuation.
Equity financing clause with strategic investor clause
This version includes a strategic investor clause.
The [Company] agrees to prioritize securing strategic investors in the equity financing round who can contribute to the long-term success of the [Company] through their industry expertise, business network, or other strategic advantages.
Equity financing clause with no dilution for early investors
This version includes no dilution for early investors.
The [Company] agrees that early investors, including the [Investor], shall not be diluted by more than [X]% during the equity financing round, even if new shares are issued at a lower price.
Equity financing clause with restriction on future offerings at a lower price
This version restricts future offerings.
The [Company] agrees not to issue additional shares at a price lower than the price paid by the [Investor] in this financing round for a period of [X] months without the [Investor]’s consent.
Equity financing clause with payment in kind option
This version includes a payment in kind option.
The [Investor] shall have the option to make their investment in the equity financing round through a payment in kind, such as by contributing assets, intellectual property, or services, in lieu of cash.
Equity financing clause with participation rights in future rounds
This version grants participation rights.
The [Investor] shall have the right to participate in any future equity financing rounds, at the same price and terms offered to new investors, to maintain their relative ownership in the [Company].
Equity financing clause with clause for equal treatment
This version ensures equal treatment of investors.
In the event of future equity financings, the terms and conditions provided to the [Investor] in this round shall be no less favorable than those offered to other investors in the same financing round.
Equity financing clause with convertible equity options
This version includes convertible equity options.
The [Investor] shall have the option to convert the equity securities purchased in this round into another class of equity securities in a future financing round, under terms agreed upon in the future.
Equity financing clause with adjustment for other securities issued
This version adjusts for the issuance of other securities.
If the [Company] issues any securities that can be converted into equity (such as warrants or convertible debt) at a price lower than the price per share paid by the [Investor], the [Investor]’s equity position shall be adjusted accordingly.
Equity financing clause with buyout provision if financing falls short
This version includes a buyout provision.
If the [Company] is unable to raise the full amount of capital sought in the equity financing round, the [Investor] shall have the right to buy out a portion of the outstanding shares at the agreed-upon price.
Equity financing clause with conditions for further investment
This version includes conditions for additional investments.
If the [Company] raises additional capital in the future, the [Investor] shall have the right to invest further to maintain their percentage ownership, under the same terms as those offered to new investors.
Equity financing clause with staggered closing dates
This version allows staggered closing dates.
The [Company] may close the equity financing in multiple tranches, with each tranche subject to its own terms and conditions, and each closing occurring on a different date within [X] months of the initial closing.
Equity financing clause with protection for key employees
This version protects key employees.
The [Investor] shall be entitled to receive equity financing terms that protect key employees from dilution, ensuring that their ownership percentages are maintained in future rounds of funding.
Equity financing clause with matching contribution rights
This version includes matching contribution rights.
The [Investor] shall have the right to match any future contribution to the [Company]’s equity financing, ensuring that they maintain their proportionate ownership in the [Company].
Equity financing clause with purchase price determination
This version includes a provision for determining the purchase price.
The price per share for the equity financing shall be determined by the [Company] based on a valuation of the [Company] by an independent third-party appraiser, and the final price shall be agreed upon by the [Company] and the [Investor].
Equity financing clause with proceeds allocation
This version specifies the allocation of proceeds.
The proceeds from the equity financing round shall be used exclusively for [X purposes, e.g., capital expenditure, working capital, debt repayment], and the [Company] agrees to provide detailed accounting of the use of funds raised.
Equity financing clause with rights of approval for financing terms
This version includes approval rights.
The [Investor] shall have the right to approve the terms of any equity financing, including the price per share, number of shares issued, and any other terms that would significantly impact their investment.
Equity financing clause with seniority in case of liquidation
This version grants seniority rights.
In the event of liquidation, the shares issued in this equity financing round shall have a seniority position over common stock and shall be paid out before any distribution to common shareholders.
Equity financing clause with matching investment rights
This version provides matching investment rights.
The [Investor] shall have the right to invest in subsequent rounds of equity financing at the same price and terms offered to new investors, to maintain their ownership percentage in the [Company].
Equity financing clause with restriction on issuance of preferred stock
This version includes restrictions on issuing preferred stock.
The [Company] agrees not to issue any preferred stock that would rank senior to the shares issued in this equity financing round without the consent of the [Investor].
Equity financing clause with exit rights for investors
This version grants exit rights.
The [Investor] shall have the right to exit the investment by selling their shares in the equity financing round, at the same terms and conditions offered to new investors, subject to any restrictions on transfer.
Equity financing clause with equity redemption option
This version includes an option for redemption.
The [Investor] shall have the right to require the [Company] to redeem their shares at the purchase price paid in this financing round, upon a specific event such as a change of control or liquidation of the [Company].
Equity financing clause with rights in case of additional rounds
This version provides rights in future rounds.
The [Investor] shall have the right to participate in any subsequent rounds of equity financing in order to maintain their ownership percentage, under the same terms and conditions as those offered to new investors.
Equity financing clause with restrictions on debt issuance
This version includes restrictions on debt issuance.
The [Company] shall not issue any debt securities that would rank senior to the equity securities issued in this financing round without the prior written consent of the [Investor].
Equity financing clause with anti-dilution protection for additional shares
This version provides anti-dilution protection for additional shares.
The [Investor] shall be entitled to anti-dilution protection in the event the [Company] issues additional shares at a price lower than the price paid by the [Investor], ensuring that the [Investor]’s ownership percentage is not diluted.
Equity financing clause with rights of first offer
This version includes rights of first offer.
Before the [Company] seeks to raise additional equity financing, the [Investor] shall have the right to make the first offer to invest in the new round, on the same terms as those offered to other investors.
Equity financing clause with participation in secondary sales
This version allows participation in secondary sales.
The [Investor] shall have the right to participate in any secondary sale of shares by other investors, at the same price and terms offered to the selling investors, in order to maintain their ownership percentage in the [Company].
Equity financing clause with voting rights for equity investors
This version includes voting rights.
The shares issued in the equity financing round shall confer voting rights equal to those of common stockholders, except as otherwise agreed in the [Company]’s charter or bylaws.
Equity financing clause with registration rights
This version provides registration rights.
The [Investor] shall have the right to demand that the [Company] register the shares acquired in the equity financing round for resale under the Securities Act, subject to the conditions outlined in this Agreement.
Equity financing clause with limitation on share issuance
This version limits the issuance of shares.
The [Company] agrees not to issue any additional shares in the equity financing round in excess of [X]% of the total outstanding shares without the consent of the [Investor].
Equity financing clause with obligation to inform of financing opportunities
This version includes an obligation to inform the investor.
The [Company] agrees to inform the [Investor] of any potential equity financing opportunities, including the terms and conditions, at least [X] days before proceeding with such financing.
Equity financing clause with clause for shareholder approval
This version requires shareholder approval.
Any equity financing shall be subject to approval by a majority of the [Company]’s shareholders, in addition to the approval of the Board of Directors.
Equity financing clause with restriction on sale of new shares
This version includes restrictions on selling new shares.
The [Company] shall not sell new shares to third parties in the equity financing round for a price lower than the price paid by the [Investor] without the written consent of the [Investor].
Equity financing clause with matching loan financing option
This version includes a loan financing option.
The [Investor] shall have the option to convert any loan financing into equity shares during the equity financing round, at the same terms as those offered to other equity investors.
Equity financing clause with specified closing procedures
This version outlines the closing procedures.
The closing of the equity financing round shall occur within [X] days of the finalization of the terms, with the [Company] and the investors completing all necessary procedures, including legal documentation and payment of capital.
Equity financing clause with post-closing rights
This version includes post-closing rights.
After the closing of the equity financing round, the [Investor] shall have the right to receive periodic financial reports and updates on the progress of the [Company]’s business and use of proceeds.
Equity financing clause with exclusivity period
This version includes an exclusivity period.
The [Company] agrees to negotiate exclusively with the [Investor] for a period of [X] days following the execution of this agreement regarding the terms of the equity financing, during which no other investors will be solicited.
Equity financing clause with floor on valuation
This version includes a valuation floor.
The valuation of the [Company] in the equity financing round shall not fall below [X] amount, regardless of market conditions or investor feedback.
Equity financing clause with closing conditions based on due diligence
This version includes due diligence-based closing conditions.
The closing of the equity financing round is contingent upon the completion of due diligence to the satisfaction of the [Investor], including the review of financial, legal, and operational documents of the [Company].
Equity financing clause with right to participate in strategic decisions
This version includes participation in strategic decisions.
As part of the equity financing, the [Investor] shall have the right to participate in certain key strategic decisions, including decisions related to acquisitions, capital expenditures, or major changes to the business model.
Equity financing clause with liquidity event participation
This version provides participation in a liquidity event.
The [Investor] shall have the right to participate in any liquidity event, such as a merger, acquisition, or initial public offering, and shall receive their proportional share of the proceeds from such event based on their ownership percentage.
Equity financing clause with restriction on issuance of new classes of shares
This version restricts the issuance of new share classes.
The [Company] shall not issue any new classes of stock or equity securities that have seniority over the shares issued in this financing round without the prior written consent of the [Investor].
Equity financing clause with provision for third-party financing
This version allows third-party financing.
The [Company] may seek additional third-party financing in the equity financing round, provided that the terms of such financing are no less favorable to the [Investor] than those offered to other investors.
Equity financing clause with obligation to maintain capital structure
This version obligates the company to maintain capital structure.
The [Company] agrees to maintain its capital structure following the equity financing round, including the number of shares outstanding and any convertible securities, as agreed upon in this Agreement.
Equity financing clause with adjustment for adverse business conditions
This version adjusts for adverse business conditions.
In the event that the [Company] faces adverse business conditions, including changes in market conditions, customer behavior, or operational difficulties, the terms of the equity financing may be adjusted to reflect such challenges.
Equity financing clause with inclusion of a strategic investor
This version includes a strategic investor.
The [Company] agrees to include a strategic investor in the equity financing round, who will bring additional industry expertise, business connections, or operational support to the [Company].
Equity financing clause with restrictions on asset sales
This version includes restrictions on asset sales.
The [Company] agrees not to sell any significant assets or intellectual property without the prior approval of the [Investor], except in the case of an acquisition or other strategic transaction.
Equity financing clause with investor’s right to reject terms
This version grants the investor a right to reject terms.
The [Investor] shall have the right to reject the terms of the equity financing round if the terms differ materially from those discussed and agreed upon in the negotiations.
Equity financing clause with preference for specific use of funds
This version specifies the use of funds.
The [Investor] requires that the funds raised in the equity financing round be used exclusively for the following purposes: [e.g., research and development, marketing, acquisition of assets].
Equity financing clause with rights in the event of a down round
This version provides rights in the event of a down round.
If the [Company] conducts a down round financing, the [Investor] shall have the right to purchase additional shares at the same price to maintain their ownership percentage, or the exercise price of their options will be adjusted to reflect the lower price.
Equity financing clause with non-compete provision
This version includes a non-compete provision.
The [Investor] agrees not to invest in or operate any business that competes directly with the [Company] for a period of [X] years following the closing of the equity financing round, unless otherwise agreed by the [Company].
Equity financing clause with adjustment for shareholder equity
This version adjusts for shareholder equity changes.
In the event of changes to shareholder equity, including repurchases or other capital events, the [Investor] shall receive adjustments to their equity position in the [Company] to maintain their relative ownership percentage.
Equity financing clause with mandatory buyback provision
This version includes a mandatory buyback provision.
The [Company] shall be obligated to repurchase the [Investor]’s equity securities at the original purchase price plus interest in the event of a breach of this Agreement or the [Company]’s failure to meet specific milestones outlined in the investment terms.
Equity financing clause with creation of special purpose vehicle
This version allows the creation of a special purpose vehicle (SPV).
The [Investor] may establish a special purpose vehicle (SPV) to hold their investment in the [Company] as part of the equity financing round, subject to the approval of the [Company].
Equity financing clause with representation and warranties from investors
This version includes representations and warranties.
The [Investor] represents and warrants that they have the financial capacity to participate in the equity financing round, and that the investment will not violate any laws or agreements to which they are a party.
Equity financing clause with restriction on exit without consent
This version restricts exits without consent.
The [Investor] agrees not to sell or transfer their shares in the [Company] without the prior consent of the [Company] for a period of [X] years, except in the case of an exit event such as a merger or IPO.
Equity financing clause with post-financing reporting requirements
This version includes reporting requirements.
Following the equity financing, the [Company] shall provide the [Investor] with quarterly financial statements, updates on the use of proceeds, and any material changes to the business plan for the next [X] years.
Equity financing clause with terms for an investor’s exit strategy
This version includes an exit strategy.
The [Company] and the [Investor] agree to negotiate and establish an exit strategy for the [Investor]’s equity position in the [Company] within [X] years, including potential sale, merger, or public offering options.
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.