What goes in my Class(es) of Securities Outstanding section?
June 6 2025 10:29pm • Est. Read Time: 2 MINThe Company's securities 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 has authorized (e.g., common stock, preferred stock) and currently has outstanding (including instruments like convertible promissory notes or SAFE agreements), and explains the key differences between them. This way, investors can get a better understanding of how their investment plays into the bigger picture.
This includes any classes that are authorized by the Articles of Incorporation/Operating Agreement, even if no shares have been issued.
In each section, there are three key pieces of information.
- Security Name: This should match the specific name used in your authorizing document (e.g., Articles of Incorporation, Certificate of Designation, or Operating Agreement), such as “Class A Common Stock” or “Series Seed Preferred Units.
- Outstanding Amount of Securities in this Class: This should be the number of securities currently outstanding for each class, calculated on a fully diluted basis. Fully diluted means including all securities that are currently issued and outstanding, as well as those that could convert into this class, such as unexercised options, warrants, or ESOP shares held in reserve for future issuance, regardless of vesting status.
- Description of Rights and Preferences: Summarize the rights, preferences, and limitations associated with each outstanding class of security, based on your company’s governing documents (e.g., Articles of Incorporation, Operating Agreement, Convertible Note Agreements).
For equity securities (e.g., stock or membership units), include applicable terms such as voting rights, dividend or distribution rights, liquidation preferences, anti-dilution protections, and any other material provisions that distinguish the class.
For convertible instruments (e.g., convertible notes or SAFEs), include the conversion trigger or conditions, valuation cap, discount rate, and any other material terms investors should be aware of.