Capital adjustments clause: Copy, customize, and use instantly
Introduction
A capital adjustments clause defines the mechanisms and terms under which adjustments to a company’s capital are made. This can include changes in the company’s equity, the issuance of new shares, adjustments to share prices, or the distribution of profits. It ensures clarity on how capital changes are handled and can help avoid disputes in business arrangements like mergers, acquisitions, or capital restructurings.
Below are templates for capital adjustments clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard capital adjustments clause
This version provides the general framework for capital adjustments.
The Parties agree that any changes to the capital structure of [Company Name], including but not limited to the issuance of new shares, changes in share price, or capital contributions, will be made in accordance with the terms set forth in this Agreement. Any adjustments shall be made based on [specified conditions or formulas] and will be communicated to all shareholders in writing.
Capital adjustments clause with price-based adjustment mechanism
This version links capital adjustments to price changes.
In the event of a material change in the valuation of [Company Name] as determined by an independent third-party appraiser, the Parties agree that adjustments to the capital structure, including the issuance of additional shares, shall be made at a price per share based on the new valuation, subject to the approval of [specified party].
Capital adjustments clause with issuance of additional equity
This clause addresses the issuance of additional equity.
[Company Name] agrees to issue additional equity shares to the shareholders as a capital adjustment in proportion to their current ownership interests. The issuance will take place within [X] days of the event triggering the adjustment and the new shares will carry the same rights as the original shares.
Capital adjustments clause with dilution protection
This version provides dilution protection for existing shareholders.
In the event that [Company Name] issues additional shares or adjusts its capital structure in a manner that would dilute the ownership percentage of existing shareholders, the company agrees to provide existing shareholders with the right to purchase a proportionate number of the new shares at the same price to prevent dilution of their ownership.
Capital adjustments clause with adjustments for dividends or distributions
This clause ties capital adjustments to dividends.
If [Company Name] declares a dividend or makes a distribution, the capital structure of the company shall be adjusted accordingly, with the shareholders’ equity being adjusted in proportion to the dividend amount or distribution. The adjustments will be made at the time the dividend or distribution is made and in accordance with the terms of this Agreement.
Capital adjustments clause with adjustments based on performance metrics
This version ties adjustments to performance targets.
In the event that [Company Name] meets or exceeds the financial performance targets outlined in Section [X], the Parties agree to adjust the capital structure by issuing additional shares or providing other forms of equity compensation to shareholders, as determined by the performance metrics.
Capital adjustments clause with adjustment based on funding rounds
This clause addresses adjustments following a funding round.
Following any funding round in which [Company Name] raises capital from investors, the Parties agree to adjust the capital structure, including the issuance of new equity shares, based on the terms and valuation set forth in the funding agreement.
Capital adjustments clause with adjustment based on merger or acquisition
This version links capital adjustments to a merger or acquisition.
In the event that [Company Name] undergoes a merger, acquisition, or other change of control, the capital structure of the company shall be adjusted to reflect the terms of the transaction, including but not limited to the issuance of new shares or changes in shareholder equity.
Capital adjustments clause with proportional ownership adjustments
This version ensures proportional adjustments based on ownership.
Any adjustments to the capital of [Company Name] shall be made in proportion to the existing ownership percentages of the shareholders, and each shareholder will receive new equity or capital contributions corresponding to their current ownership interest.
Capital adjustments clause with adjustment for capital contributions
This clause accounts for contributions from shareholders.
If any shareholder makes additional capital contributions to [Company Name], the capital structure shall be adjusted to reflect the increased capital contribution, and the shareholder’s equity percentage shall be recalculated based on the new total capital.
Capital adjustments clause with issuance of warrants or options
This version includes the issuance of warrants or options.
[Company Name] may issue warrants or options as part of a capital adjustment, granting the holder the right to purchase additional shares at a set price. The issuance of such warrants or options will result in a proportional adjustment to the company’s total capital and the shareholder equity.
Capital adjustments clause with revaluation of assets
This clause involves capital adjustments due to asset revaluation.
In the event of a revaluation of [Company Name]’s assets, the capital structure shall be adjusted based on the new valuation of the company’s assets. This may result in the issuance of additional shares or other adjustments to the shareholders’ equity.
Capital adjustments clause with rights offering
This version includes a rights offering.
If [Company Name] issues a rights offering, shareholders shall have the opportunity to purchase additional shares to maintain their proportional ownership in the company. The issuance of additional shares will result in a capital adjustment, and the rights offering will be governed by the terms of this Agreement.
Capital adjustments clause with anti-dilution protection
This clause provides anti-dilution protection for shareholders.
In the event that [Company Name] issues new shares at a price lower than the current price per share, the Parties agree to implement anti-dilution protection for existing shareholders, adjusting their equity holdings to maintain their proportional ownership.
Capital adjustments clause with cash-based capital increase
This version addresses capital increases via cash.
[Company Name] may increase its capital by issuing additional shares in exchange for cash contributions from existing or new shareholders. The amount of new capital raised will be reflected in the adjusted capital structure, and shareholders will receive additional shares based on their proportionate contributions.
Capital adjustments clause with adjustments for strategic partnerships
This version links adjustments to strategic partnerships.
If [Company Name] enters into a strategic partnership or joint venture requiring capital contributions, the capital structure may be adjusted to reflect the contributions of the strategic partner, with new shares or equity issued to accommodate the partnership terms.
Capital adjustments clause with provision for equity buybacks
This clause includes buyback provisions for equity.
[Company Name] may, at its discretion, repurchase shares from shareholders at a price mutually agreed upon. The capital structure will be adjusted accordingly, and the repurchased shares shall be retired or held as treasury stock, as determined by the board.
Capital adjustments clause with exit-triggered capital distribution
This version addresses capital adjustments upon exit events.
In the event of an exit event, such as the sale or public offering of [Company Name], the capital structure shall be adjusted to provide for a distribution of capital to the shareholders in proportion to their ownership interest or as otherwise specified in the exit agreement.
Capital adjustments clause with conversion of convertible securities
This clause includes conversion of convertible securities.
In the event that convertible securities, such as convertible bonds or preferred shares, are converted into common equity, the capital structure of [Company Name] shall be adjusted to reflect the conversion, and the ownership percentages of the common shareholders will be recalculated.
Capital adjustments clause with vesting of founder equity
This version involves the vesting of founder equity.
The Parties agree that the founder equity issued at the inception of [Company Name] shall vest over a period of [X] years. If the founder exits before full vesting, the unvested portion of their equity will be subject to a capital adjustment, and the equity will be redistributed among the remaining shareholders.
Capital adjustments clause with adjustments based on debt restructuring
This clause addresses capital adjustments due to debt restructuring.
In the event that [Company Name] undergoes a debt restructuring, the terms of the restructuring may require adjustments to the company’s capital structure, including the issuance of new equity, conversion of debt to equity, or other mechanisms as specified in the restructuring agreement.
Capital adjustments clause with minimum capital requirement
This version ensures a minimum capital requirement.
[Company Name] agrees to maintain a minimum capital base of [$X]. If the capital falls below this amount, the Parties agree to issue additional shares or make other adjustments to restore the capital to the required level.
Capital adjustments clause with adjustments due to regulatory changes
This clause includes adjustments triggered by regulatory changes.
If there are changes in applicable laws or regulations affecting the capital structure or equity ownership of [Company Name], the Parties agree to make any necessary capital adjustments to comply with the new requirements, including issuing new shares or reclassifying existing shares.
Capital adjustments clause with provision for shareholder loan conversion
This version involves the conversion of shareholder loans.
If any shareholder provides a loan to [Company Name], the loan may be converted into equity at the discretion of the shareholder, subject to the terms of this Agreement. The conversion will result in an adjustment to the capital structure, with the loan amount being credited toward the issuance of new shares.
Capital adjustments clause with adjustments for tax purposes
This version links capital adjustments to tax considerations.
In order to comply with applicable tax laws or to optimize tax efficiency, [Company Name] may make capital adjustments, including the issuance of new equity or reallocation of equity interests, as deemed necessary by the board or tax advisors.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.