Restrictive covenants are standard features of venture capital, growth equity and private equity transactions although each investor type has its own standards. Restrictive covenants are the actions a company cannot take without investor approval. A short list of typical restrictive covenants includes:
- A sale of a Company or sale of a majority of the Company’s assets;
- Sales of new securities;
- Changes to Articles or Incorporation that change the rights and preferences of existing securities;
- Changes in Board Composition;
- Payment of dividends or any kind of not previously agreed to distributions;
- Changes to the size of option and other incentive plans; Incurrence of indebtedness above a certain dollar threshold;
- and Transactions with affiliates.
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