What goes in my Class(es) of Securities Outstanding section on the Legal page?

'Class(es) of Securities Outstanding' is a section that companies usually have a lot of questions about.  The purpose of this section is to help investors understand the structure of your company.

This section identifies every class of security that your company is offering (i.e., common stock, preferred stock) and explains the differences between them.  This way, investors can get a better understanding of how their investment plays into the bigger picture.

If you have more than one class of security (usually Common Stock or LLC Membership Units), then you should use the “+ Add Another Class of Securities Outstanding” button at the bottom of this field to add a section for each additional class.  For example, if your company has multiple classes of common stock, you should add a section for each (i.e., Class A Common Stock, Class B Common Stock). This includes any classes that are authorized by the Articles of Incorporation/Operating Agreement, even if no shares have been issued. It also includes any currently outstanding Convertible Notes.

 In each section, there are three key pieces of information.

• Security Name: This should be specific to the exact security type (i.e. Common Stock, Class A Preferred Stock, Non-Voting Membership Interests, Convertible Notes, etc.)
• Outstanding Amount of Securities in this Class: This should be the actual number of shares/units currently issued for each specific class. Issued means any shares that are actually owned by someone. This number should be calculated on a fully diluted basis (meaning the shares should be counted even if they haven’t vested yet).
• Description of Rights and Preferences: This section describes the differences between each class of security.  These should summarize the information for each class in your corporate documents (i.e., Articles of Incorporation, Operating Agreement) that would be important to investors.
• For equity (stock/units), this includes things like voting rights, dividend/distribution rights, liquidation preferences, dilution possibilities, and any other material terms. (For further clarity you can refer to our example templates of these descriptions on the Legal page).
• For convertible notes, this includes things like type of equity the notes convert into, conversion $ trigger, valuation cap, discount rate, total amount invested, and any other material terms.