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Preferred Equity Agreement for the United Kingdom

Preferred Equity Agreement Template for England and Wales

A Preferred Equity Agreement under English and Welsh law is a legal document that establishes the terms and conditions for an investment in preferred shares of a company. It outlines the preferential rights, dividend preferences, liquidation preferences, and other special rights granted to preferred equity holders. The agreement is governed by English law and typically includes provisions for voting rights, anti-dilution protection, and exit mechanisms. It serves as a crucial document for companies seeking growth capital while offering investors certain privileges over common shareholders.

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What is a Preferred Equity Agreement?

A Preferred Equity Agreement is commonly used when companies seek to raise capital while offering investors enhanced rights and protections. Under English and Welsh law, this agreement defines the relationship between the company and preferred equity holders, establishing their rights, preferences, and obligations. The document typically includes detailed provisions on dividend rights, liquidation preferences, voting rights, and conversion options. It's particularly valuable for growth-stage companies looking to attract institutional investors while maintaining operational control.

What sections should be included in a Preferred Equity Agreement?

1. Parties: Identification of all parties to the agreement

2. Background: Context and purpose of the preferred equity investment

3. Definitions: Key terms used throughout the agreement

4. Subscription Terms: Details of the preferred equity investment amount and terms

5. Preferred Rights: Specific rights attached to the preferred equity

6. Dividend Rights: Terms regarding dividend payments and preferences

7. Exit Rights: Provisions for liquidation preference and exit scenarios

What sections are optional to include in a Preferred Equity Agreement?

1. Anti-dilution Protection: Protection mechanisms against future dilutive issuances, typically included when investors require protection against down rounds

2. Board Rights: Rights to board representation and participation in corporate governance, included when investors require direct board involvement

3. Information Rights: Rights to receive company information and financial reports, included when investors need specific reporting requirements

4. Tag-Along Rights: Right to join in sale of shares, typically included when minority investor protection is required

What schedules should be included in a Preferred Equity Agreement?

1. Schedule 1: Share Capital: Details of the company's share capital structure

2. Schedule 2: Warranties: Company warranties given to the preferred equity investor

3. Schedule 3: Conditions Precedent: Conditions that must be satisfied before completion

4. Schedule 4: Reserved Matters: Matters requiring preferred equity holder consent

5. Appendix A: Form of Directors' Resolution: Template for required board approvals

6. Appendix B: Completion Requirements: Checklist of completion deliverables

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

England and Wales

Publisher

Ƶ

Document Type

Equity Agreement

Cost

Free to use
Relevant legal definitions




















Clauses




















Industries

Companies Act 2006: Primary legislation governing company formation, share classes and rights, directors' duties, share capital requirements, and corporate governance matters in England and Wales

Financial Services and Markets Act 2000: Regulates investment activities, financial promotions, and establishes regulatory framework for financial services in the UK

Financial Services Act 2012: Updates to financial services regulation and additional oversight requirements for financial institutions

UK Corporate Governance Code: Sets out standards of good practice for listed companies on board composition, development, remuneration, shareholder engagement, and corporate governance

Limited Partnerships Act 1907: Governs the formation and operation of limited partnerships in the UK, relevant if the preferred equity structure involves limited partnerships

UK Listing Rules: Regulations governing admission to the Official List and ongoing obligations for listed companies

Market Abuse Regulation (MAR): European-derived regulation addressing insider dealing, unlawful disclosure of inside information, and market manipulation

PSC Regulations: Requirements for companies to identify and record people with significant control, ensuring transparency of beneficial ownership

Corporation Tax Act 2010: Primary legislation governing corporate taxation in the UK, including treatment of different types of equity instruments

Income Tax Act 2007: Legislation governing personal income tax, relevant for tax treatment of preferred equity distributions to individual holders

Taxation of Chargeable Gains Act 1992: Governs the taxation of capital gains, including gains from disposal of preferred equity interests

Misrepresentation Act 1967: Provides remedies for misrepresentation in contract formation, relevant for representations and warranties in preferred equity agreements

Competition Act 1998: Regulates anti-competitive behavior and agreements, may be relevant for certain preferred equity arrangements

Enterprise Act 2002: Updates competition law and corporate insolvency provisions, relevant for preferred equity rights in insolvency scenarios

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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