Delaware Clauses Relating to Preferred Returns

• Category: Partnerships - Drafting Joint Venture Agreements
• State: Multi-State
• Control #: US-P0606-2BAM
• Format: Word; Rich Text

Description

This sample form, containing Clauses Relating to Preferred Returns document, is usable for corporate/business matters. The language is easily adaptable to fit your circumstances. You must confirm compliance with applicable law in your state. Available in Word format.

Delaware Clauses Relating to Preferred Returns: Preferred returns are a vital component of many investment agreements, and Delaware law provides clear guidelines for incorporating preferred return clauses into contracts. Preferred return clauses help protect investors by guaranteeing them a specific rate of return before other stakeholders can receive any distributions. Delaware General Corporation Law (DCL) governs the establishment and interpretation of preferred returns to the state of Delaware. Below, we will outline the various types of Delaware clauses relating to preferred returns, ensuring a comprehensive understanding of this essential legal provision. 1. Fixed Preferred Return Clause: Under Delaware law, investors may negotiate a fixed preferred return clause, which guarantees a specific rate or amount of return on their investment before any other distributions are made. For example, a fixed preferred return clause may state that investors will receive an annual return of 7% on their investment. 2. Variable Preferred Return Clause: In contrast to the fixed preferred return clause, the variable preferred return clause allows for a fluctuating return on investment based on a predefined formula or benchmark. The return is calculated based on the overall performance of the investment or a relevant market index over a specified period. 3. Cumulative Preferred Return Clause: The cumulative preferred return clause ensures that any unpaid preferred returns from previous periods are carried forward and must be satisfied before other parties receive any distributions. This clause protects investors by allowing them to accumulate unpaid returns until the investment performs favorably enough to meet those obligations. 4. Non-Cumulative Preferred Return Clause: Unlike the cumulative preferred return clause, the non-cumulative preferred return clause does not allow unpaid preferred returns to accumulate and carry forward. If the investment fails to generate sufficient returns in a given period, the investors waive their right to claim the unpaid returns, and the opportunity to recoup those returns is lost. 5. Convertible Preferred Return Clause: In certain scenarios, investors may negotiate a convertible preferred return clause, which offers the option to convert their preferred return into equity or another form of investment. This clause provides investors with flexibility and potential participation in the growth of the company beyond the original fixed or variable rate of return. 6. Priority Preferred Return Clause: A priority preferred return clause establishes a hierarchy in the distribution of returns from an investment. It ensures that investors with preferred return rights are entitled to receive their returns before other stakeholders, such as common shareholders or holders of less prioritized investments. The aforementioned Delaware clauses relating to preferred returns can typically be customized to meet the specific requirements of a particular investment agreement. Investors, issuers, and other relevant parties are advised to consult legal professionals to ensure compliance with Delaware law and the specific needs of their investment endeavors.