A Certificate of Designation is a formal legal document that outlines the rights, preferences, privileges, and restrictions of a particular class or series of shares within a corporation. It’s typically used for preferred stock or any special class of shares that may have different terms compared to common stock.In the context of your Regulation CF crowdfunding raise, if you’re offering a special class of shares (like preferred shares), this certificate will specify important details such as:
- Dividend rights
- Voting rights
- Conversion rights (if the shares can be converted into another class of stock)
- Liquidation preferences
- Redemption rights (if the shares can be repurchased by the company)
Your transfer agent needs this document to properly issue and record these shares to the holders, ensuring that they follow the specific terms and conditions under which the shares were offered. It is usually filed with the state where your company is incorporated, similar to articles of incorporation.Typically, the company’s legal counsel is responsible for drafting the Certificate of Designation. This is because the document is a legal filing that requires a thorough understanding of securities law and corporate governance.