Glossary: Anti-Dilution Provision

Anti-Dilution Provision

Anti-Dilution Provision - Normally, the percentage of a corporation's issued shares gets decreased as a result of the issuance of additional stock. A Shareholder's Agreement that contains an anti-dilution provision or clause will protect a particular Shareholder from a reduction in his or her percentage in a company in that event. For example, suppose you own 10% of the issued shares of XYZ Corporation. Suppose further that you are the only original investor who is a party with XYZ to a Shareholder's Agreement or Investment Agreement containing an anti-dilution provision. When XYZ issues another 100,000 shares to new investors a year later, you will receive additional shares to maintain a 10% ownership of XYZ Corporation and each other original investor will suffer a reduction in the percentage of XYZ that he or she owns after the 100,000 shares have been issued to the new investors and to you.

Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.

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