Blank Check Preferred . . . 

refers to a method companies use to simplify the process of creating new classes of preferred and convertible preferred stock. The method enables a company to use newly created classes of preferred stock to raise additional funds from sophisticated investors without obtaining separate shareholder approval for each new class of stock.

The method involves amending a company's articles of incorporation or charter to create a class of unissued shares of preferred stock whose terms and conditions may be expressly determined by the company's board of directors. The adoption of the blank check provision requires the approval of the company's board of directors and shareholders. Once the provision is approved and incorporated into the company's charter, the board of directors can, within the limits contained in the provision, create new classes of preferred and convertible preferred stock and authorize their issuance to new investors without seeking additional approval from the company's shareholders.

A blank check preferred provision for a company with 2,000,000 shares of convertible preferred stock outstanding might read as follows:

The corporation is authorized to issue 10,000,000 shares of preferred stock, 2,000,000 of which shall be designated as "Series A Convertible Preferred Stock" having the rights, preferences, privileges and restrictions provided in Article II(b). The remaining shares of preferred stock may be issued from time to time in one or more series as determined by the corporation's Board of Directors, which is authorized to designate all rights, preferences, privileges and restrictions attendant to each series as well as the number of shares authorized for issuance in each series, which matters shall be expressed in resolutions adopted by the Board of Directors and filed with the Secretary of State as required by the General Corporation law of the State.

Blank check preferred provisions must be prepared in compliance with the laws of the state in which the company is incorporated and so should be adopted only after consultation with a qualified attorney. Because these provisions authorize a company's board of directors to create securities that have preferences over existing shareholders without first obtaining the approval of affected shareholders they may not be appropriate for every company. See: Board of Directors, Control, Convertible Preferred Stock, Preferred Stock.