# Protective provisions

> The actions the company cannot take without the preferred's consent, from the NVCA model charter.

Source: https://lopifi.com/learn/term-sheet-explained/protective-provisions
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What are protective provisions in a term sheet?** The actions the company cannot take without the preferred's consent, from the NVCA model charter.

[Protective provisions](https://lopifi.com/md/glossary/protective-provisions) are a veto. While a set number of preferred shares is outstanding, the NVCA model charter says the company may not do certain things without the preferred's consent, whatever the board decides.

| The company may not, without the preferred |
| --- |
| Liquidate, dissolve, or effect a deemed liquidation event (a sale) |
| Amend the charter or bylaws in a way that adversely affects the preferred |
| Create stock ranking senior to (or equal with) the preferred |
| Increase (or decrease) the authorized shares of any class or series |
| Redeem shares or pay dividends, other than as the charter allows |
| Change the number of directors (optional in the model) |

From the NVCA model's list. Some are bracketed — optional — in the model and negotiated in the term sheet.

> “increase [or decrease] the authorized number of shares of Common Stock, Preferred Stock, or any series thereof;”

— [NVCA Model Certificate of Incorporation (Oct. 2025), §3.3 (Preferred Stock Protective Provisions)](https://nvca.org/model-legal-documents/), Protective provisions: what the company may not do without the preferred

> “a majority of the outstanding stock entitled to vote thereon”

— [8 Del. C. §242(b)(1)–(2)](https://delcode.delaware.gov/title8/c001/sc08/index.html), Amending the charter: a board resolution, then the stockholders — and a class vote when a class's shares change

> **Why it matters for the option pool.** Increasing the authorized shares is on the list. A pool top-up that needs more authorized common needs the preferred's consent — one more reason to size the pool at the round.

## Where this page's rules come from

- [NVCA Model Certificate of Incorporation (Oct. 2025), §3.3 (Preferred Stock Protective Provisions)](https://nvca.org/model-legal-documents/) — Protective provisions: what the company may not do without the preferred (reference)
- [8 Del. C. §242(b)(1)–(2)](https://delcode.delaware.gov/title8/c001/sc08/index.html) — Amending the charter: a board resolution, then the stockholders — and a class vote when a class's shares change (state)

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