Opinion ID: 2308369
Heading Depth: 1
Heading Rank: 3

Heading: Preferred Stock Contracts

Text: Section 151(a) of the DGCL affords Delaware corporations the ability to provide for the flexible financing that is necessary to meet the unique funding needs of the enterprise and the requirements of diverse investors in today's competitive global capital markets. Section 151(a) provides: Every corporation may issue one or more classes of stock    any or all of which classes    may have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the certificate of incorporation or of any amendment thereto, or in the resolution or resolutions providing for the issue of such stock adopted by the board of directors pursuant to authority expressly vested in it by provisions of its certificate of incorporation.    [3] Delineating the specific rights and limitations of preferred shareholders is the function of corporate drafters. [4] Section 151(a) has been described by one legal scholar as: hand[ing] the drafter of the corporate charter a blank slate on which to fill in the rights of different classes of equity participantsrights which by definition concern periodic returns, capital payouts on (or prior to) liquidation, and voting. On the blank slate the drafter may parse those rights among multiple classes of stock as he or she sees fit. To be preferred stock is to be a class of stock with a preference or special right as against another class of stock, with the preference or right going to periodic returns, capital payouts, or both. [5] Accordingly, the special rights and limitations of preferred stock are created by the corporate charter or a certificate of designation, which acts as an amendment to a certificate of incorporation. [6] Consequently, rights of preferred shareholders are primarily contractual in nature. [7] The construction of preferred stock provisions are matters of contract interpretation for the courts. [8]