Additional series: Overview, definition, and example
What is an additional series?
An additional series refers to a new or separate set of shares, bonds, or other financial instruments that a company or entity may issue, in addition to the original series or class of securities it has already created. These additional series can represent a different class of securities with distinct rights, privileges, or conditions, such as varying dividend rates, liquidation preferences, or voting powers. The issuance of an additional series typically requires formal approval by the company's board of directors or shareholders and may be used for raising capital, restructuring, or providing additional investment options to investors.
For example, a company may issue an additional series of preferred stock with different dividend rates than the existing series to attract new investors.
Why is an additional series important?
An additional series is important because it allows companies to meet specific financial needs, such as raising more capital, diversifying their investment offerings, or restructuring ownership. Issuing an additional series can provide flexibility in managing investor expectations, financial obligations, or corporate governance. For investors, the availability of different series provides more tailored investment opportunities, allowing them to choose the securities that best meet their risk tolerance and financial goals.
For companies, an additional series can be a strategic tool to raise funds without altering the existing structure or diluting the value of existing shares. It can also be used to cater to different groups of investors, depending on their investment preferences or requirements.
Understanding additional series through an example
Imagine a company that has issued Series A preferred stock, which gives shareholders the right to a 5% annual dividend. However, the company wants to raise additional funds but does not want to offer the same terms to new investors. The company then decides to issue an additional series of Series B preferred stock, which offers a higher 7% annual dividend but does not include voting rights. By issuing the additional series, the company is able to attract new investors willing to accept different terms while preserving the interests of existing shareholders.
In another example, a tech startup that has issued common shares may choose to issue an additional series of convertible preferred stock as part of a venture capital funding round. The new series may give investors certain privileges, such as the ability to convert their shares into common stock at a later date, providing them with potential upside if the company grows.
An example of an additional series clause
Here’s how an additional series clause might appear in a corporate charter or investment agreement:
“The Company shall have the authority to issue additional series of preferred stock as determined by the Board of Directors. Each additional series may have different terms, including but not limited to dividend rates, liquidation preferences, and voting rights. The Board of Directors may, at its discretion, issue such additional series without further approval from the shareholders, provided that the terms of each series are consistent with the Company’s Articles of Incorporation.”
Conclusion
An additional series is a useful mechanism for companies to raise capital, attract different types of investors, and offer diverse financial instruments. It provides flexibility in structuring the terms and conditions of securities, making it easier to cater to a variety of investment needs. For investors, it offers opportunities to select securities that match their financial goals, whether they are seeking higher dividends, more control, or specific conversion rights. Understanding how additional series work can help both companies and investors make informed decisions about their investments and financing strategies.
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.