Startup Terms Glossary
What is Automatic Conversion?
Automatic conversions allow the common stock to be automatically exchanged for the preferred stock in a startup organization. They are typically negotiated beforehand and described in an automatic conversion clause. An automatic conversion is considered “automatic” since the exchange does not require the startup or founders’ advance permission.
Automatic Conversion Examples
Examples of what terms automatic conversions should have include:
- Example 1. Conversion ratios and rates
- Example 2. Exceptions and limitations
- Example 3. Automatic conversion triggers
- Example 4. Optional conversion triggers
- Example 5. Agreement by all parties
This article talks about automatic conversions in more detail.
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