What Are Conversions Right And Voting Rights?
Preferred stock in venture financings is almost always convertible into common stock. Conversion is generally available at the option of the stockholder. But it can also be triggered by certain events, such as the initial public offering.
The conversion ratio determines the number of common shares that the preferred shares convert into. The ratio is typically expressed as the initial purchase price of the preferred stock divided by a “conversion price.” The conversion price normally equals the original purchase price but is subject to adjustment based on certain events (see my post on anti-dilution protection).
On general matters, preferred stock usually votes along with common stock and has a number of votes equal to the number of shares of common stock into which it is convertible. However, preferred stock also typically has special voting rights, certain of which are often called "protective provisions". These can include the right to elect one of more of the company’s directors or to approve certain types of corporate actions, such as amendments of the certificate of incorporation, issuances of certain types of stock, restructurings, liquidations, changes of control, etc.