Skip to main content
A stock purchase agreement (also called a preferred stock investment agreement) is the definitive legal document that governs the sale of preferred stock in an equity financing round. While the term sheet outlines the deal, the stock purchase agreement is the binding contract.
Unlike term sheets which are mostly non-binding, stock purchase agreements are fully binding contracts that establish the legal relationship between the company, investors, and key stakeholders.

​
Understanding stock purchase agreements

After you sign a term sheet and complete due diligence, your lawyers draft the definitive documents. The stock purchase agreement is the centerpiece.

​
Purpose and structure

The stock purchase agreement:Commits the parties to the transaction:
  • Company agrees to sell shares
  • Investors (Purchasers) agree to buy shares
  • Key holders agree to certain obligations
Sets forth the terms:
  • Number of shares each investor receives
  • Price per share
  • Payment mechanics
  • Closing procedures
Contains representations and warranties:
  • Company reps about its business, finances, IP, etc.
  • Investor reps about their qualifications
  • Legal basis for the transaction
Establishes ongoing rights and obligations:
  • Information rights for major purchasers
  • Pro rata participation rights
  • Board composition
  • Transfer restrictions
  • Drag-along rights
Typical stock purchase agreement sections:
  1. Definitions (Exhibit A)
    • Key terms used throughout
    • Economic terms from term sheet
    • Corporate governance definitions
  2. Investment terms (Section 1)
    • Sale and issuance of preferred stock
    • Purchase price
    • Closing mechanics
  3. Company representations and warranties (Section 2)
    • Organization and good standing
    • Capitalization
    • Subsidiaries
    • Authorization
    • Valid issuance
    • Litigation
    • Intellectual property
    • Employees and consultants
    • Compliance
    • Agreements
    • Liabilities
  4. Investor representations and warranties (Section 3)
    • Authorization
    • Purchase for own account
    • Accredited investor status
    • Investment sophistication
    • No general solicitation
  5. Company covenants (Section 4)
    • Information rights
    • Additional rights in future rounds
    • Assignment of preemptive rights
    • Reservation of shares
  6. Transfer restrictions (Section 5)
    • Limitations on disposition
    • Market stand-off (IPO lock-up)
    • Drag-along rights
  7. Participation rights (Section 6)
    • Pro rata rights in future rounds
  8. Board composition (Section 7)
    • Number and election of directors
  9. Miscellaneous (Sections 8+)
    • Amendments
    • Notices
    • Governing law
    • Etc.
Exhibits:
  • Exhibit A: Definitions
  • Exhibit B: Agreement terms (detailed provisions)
  • Exhibit C: Restated Certificate of Incorporation
  • Exhibit D: Disclosure schedules (if any)
Schedules:
  • Schedule 1: Purchasers and key holders
Series Seed documents are streamlined:The Series Seed Preferred Stock Investment Agreement is shorter and simpler than traditional VC documents because:
  • Standardized approach: Uses standard forms from CooleyGO
  • Reasonable representations: Not exhaustive
  • Balanced terms: Fair to both founders and investors
  • Appropriate for stage: Seed-level diligence, not Series A
Length comparison:
  • Series Seed: ~30-40 pages total
  • NVCA Series A: ~80-120 pages total
Series Seed documents strike the right balance for seed-stage companies: professional and protective without being excessive.

​
Key provisions explained

​
Investment mechanics

Core transaction terms:
Example
Subject to the terms and conditions of this Agreement:

(i) Each Purchaser will purchase at the Closing that
number of shares of Series Seed Preferred Stock set
forth opposite such Purchaser's name on Schedule 1,
at a price per share equal to the Purchase Price.

(ii) Each Purchaser, the Company, and each Key Holder
agrees to be bound by the obligations set forth in
this Agreement.
What this means:
  • Each investor’s specific share amount is listed in Schedule 1
  • Everyone pays the same price per share (the Purchase Price)
  • All parties (company, investors, key holders) are bound
Optional: Conversion of debt or SAFEs
  • Some purchase price may be paid by converting outstanding convertible securities
  • Agreement specifies conversion mechanics
  • Discounts may apply for converted securities

​
Company representations and warranties

These are the company’s promises about its condition and the transaction.
The company represents:
  • Duly organized and validly existing under state law
  • In good standing
  • Has corporate power to carry on business
  • Qualified to do business in jurisdictions where necessary
Why it matters:
  • Confirms company legally exists
  • Can enter into contracts
  • Can issue stock
  • No corporate defects
What can go wrong:
  • Company forgot to file annual reports → not in good standing
  • Never qualified in states where doing business → technical violation
Before signing, make sure your company is in good standing in Delaware (or your state of incorporation) and has filed all required reports.
Detailed representations about the cap table:Company represents:
  • Exact number of authorized shares (common and preferred)
  • Exact number of issued and outstanding shares
  • Number of shares reserved for option pool
  • Number of options outstanding
  • No other securities, warrants, or rights outstanding
Example from Series Seed:
Common Stock: 
- Common Shares Issued and Outstanding Pre-Money: 8,000,000
- Reserved for option pool: 2,000,000
- Outstanding options: 500,000
- Available for grant: 1,500,000

Preferred Stock:
- Series Seed Preferred: 2,000,000 shares authorized
- None outstanding prior to this financing
Why it matters:
  • Investors need accurate cap table
  • Determines their ownership percentage
  • Basis for all future dilution calculations
Breach example:
  • Company says 8M shares outstanding
  • Really 9M outstanding (forgot about early advisor grant)
  • Investors bought less % than they thought
  • Breach of representation
Company represents that:
  • Board has approved the transaction
  • Stockholders have approved (if required)
  • All corporate action necessary has been taken
  • Agreement is valid and binding
  • No violations of existing agreements or laws
Supporting documentation:
  • Board consent approving financing
  • Stockholder consent approving restated certificate
  • Corporate resolutions
Why it matters:
  • Ensures transaction is legally valid
  • Company had authority to issue shares
  • Shares won’t be subject to challenge later
See our guides on Board Consent and Stockholder Consent.
Company represents that the shares will be:
  • Duly authorized
  • Validly issued
  • Fully paid and nonassessable
  • Free of restrictions except those in this agreement
  • Not subject to liens or encumbrances
Compliance with securities laws:
  • Issuance complies with federal securities laws (Rule 506)
  • Issuance complies with state securities laws
  • Based on investor representations
Common stock on conversion:
  • Common stock issuable on conversion is also duly authorized and reserved
  • Will be validly issued when converted
  • No additional investor payment required
If you haven’t filed a Form D or aren’t sure about securities law compliance, fix this before signing. Consult your lawyer.
Company represents:No litigation pending or threatened against:
  • The company
  • Any officer, director, or key employee (arising from their role)
Scope:
  • Court actions
  • Arbitrations
  • Mediations
  • Governmental investigations
Caveat: “to the Company’s knowledge”Why it matters:
  • Investors need to know about legal risks
  • Lawsuits can derail business or create liabilities
  • Material litigation should be disclosed
What to disclose:
  • Any threatened lawsuits you know about
  • Ongoing disputes
  • Regulatory investigations
  • IP disputes
Company represents that it:
  • Owns or has rights to all necessary IP
  • No products/services violate third-party IP
  • No outstanding agreements sharing IP ownership
  • No communications alleging IP infringement
“To the Company’s knowledge” qualifier:
  • For third-party patents (you can’t know every patent)
  • Not for your own IP ownership
Why it matters:
  • IP is often the company’s most valuable asset
  • IP disputes can be existential threats
  • Investors need confidence in IP ownership
What to address before signing:
  • All founders/employees have assigned IP to company
  • No overlapping IP claims from previous employers
  • No outstanding IP disputes
  • Proper IP assignment agreements in place
Make sure all founders, employees, and contractors have signed IP assignment agreements before your financing closes.
Company represents that:
  • All employees/consultants have signed confidentiality and IP assignment agreements
  • No one has excluded work from assignment
  • No employees are violating prior agreements
  • All employees can work for the company without conflicts
  • Section 83(b) elections filed where required
Why it matters:
  • Ensures company owns all work product
  • Protects against IP claims
  • Confirms employees are properly onboarded
Section 83(b) elections:
  • Required when founders buy restricted stock
  • Must be filed within 30 days of purchase
  • Failure creates tax problems
  • Company should confirm all early purchases have 83(b)s

​
Investor representations and warranties

Investors also make representations to support the securities law exemptions.
Investor represents that they:
  • Have authority to enter into agreement
  • Agreement is binding and enforceable
  • No conflicts with other obligations
For entities:
  • Proper authorization from partners/board/members
  • Signatory has authority to bind entity
For individuals:
  • Legal capacity to contract
  • Not under any disability
Investor represents:
  • Buying for own account (not as nominee)
  • For investment (not for resale/distribution)
  • No present intention to sell
  • Not acting as agent for others
  • Not formed solely to purchase these securities
Why this matters:
  • Required for Rule 506 exemption
  • Can’t be buying to immediately flip/resell
  • Must be genuine long-term investment
If an investor is buying on behalf of others or intends to resell, the securities law exemptions may not apply. Serious legal issue.
Investor represents they are “accredited investor” under Rule 501:For individuals, at least one of:
  • Income > 200Kindividually(200K individually (300K jointly) in each of past 2 years
  • Net worth > $1M (excluding primary residence)
  • Hold Series 7, 65, or 82 license
  • Knowledgeable employee of the fund
For entities:
  • $5M+ in assets
  • All equity owners are accredited
  • Bank or insurance company
  • Registered investment adviser
Why this matters:
  • Required for Rule 506(b) or 506(c) exemption
  • Non-accredited investors require different process
  • Company must have reasonable belief investor is accredited
Company should collect investor questionnaires verifying accredited status before accepting investments.
Investor represents:
  • Received all information requested
  • Had opportunity to ask questions and receive answers
  • Has knowledge and experience to evaluate investment
  • Can bear the economic risk
  • Can hold investment indefinitely
Why this matters:
  • Supports securities law exemptions
  • Protects company from claims investor didn’t understand
  • Confirms investor did diligence
These reps shift risk to investor - they can’t later claim they didn’t understand or couldn’t evaluate the investment.
Investor acknowledges:
  • Securities are “restricted”
  • Not registered under Securities Act
  • Must be held indefinitely unless registered or exempt
  • No public market exists
  • May not be able to sell
Transfer restrictions:
  • Can’t sell without registration or exemption (e.g., Rule 144)
  • Company has no obligation to register
  • Exemptions may be conditional and unavailable
Legend on certificates:
  • Certificates will bear restrictive legend
  • Notifying of transfer restrictions
  • Visible reminder of limitations

​
Covenants and ongoing rights

​
Information rights

“Major Purchasers” (typically $25K-50K+ investors) receive:Annual financial statements:
  • Unaudited balance sheet
  • Unaudited income statement
  • Unaudited statement of cash flows
  • Prepared according to GAAP
  • Delivered when available
Quarterly financial statements:
  • Same content as annual
  • Except last quarter of fiscal year
  • Subject to normal year-end adjustments
Inspection rights:
  • Right to visit and inspect facilities
  • Examine books and records
  • Discuss affairs with officers
  • At reasonable times
If audited available:
  • Company provides audited instead of unaudited
  • Better for investors
Small investors don’t get information rights to reduce administrative burden. Only those who invested above the threshold.

​
Pro rata participation rights

Major Purchasers get right to participate in future rounds:Pro rata share:
  • Based on fully-diluted ownership percentage
  • Right to invest enough to maintain that percentage
  • Not an obligation - it’s a right, not a requirement
Example:
Investor owns 500,000 shares
Total fully-diluted shares: 10,000,000
Ownership: 5%

Series A: Company raises $5M at $15M pre-money
Total shares post-A: 13,333,333

To maintain 5%:
Need to own: 13,333,333 × 5% = 666,667 shares
Currently own: 500,000 shares
Must buy: 166,667 additional shares
Cost: 166,667 × Series A price per share
Investor has the right to buy those 166,667 shares but doesn’t have to.
Pro rata rights typically exclude:
  • Options issued under stock option plans
  • Securities issued to banks/lenders
  • Securities issued to strategic partners
  • Securities issued in acquisitions
  • Securities issued in public offerings
  • Stock splits, dividends, recapitalizations
Why exceptions exist:
  • Option pool is for employee compensation, not financing
  • Strategic transactions shouldn’t trigger rights
  • IPO/acquisition are liquidity events
These are standard and reasonable exclusions.
What if not all investors exercise pro rata rights?Unsubscribed shares typically offered:
  • First, to Major Purchasers who fully exercised (pro rata)
  • Then, to other investors in the new round
What if round is oversubscribed?Pro rata rights are usually:
  • Right to participate, not guarantee
  • Company and new investors control allocation
  • But must offer at least pro rata to rights holders first
In hot rounds:
  • Pro rata rights very valuable
  • Lets early investors maintain ownership
  • May be only way to get into later rounds

​
Board composition

1

Standard seed-stage board

Typical structure from term sheet:Board size: 3-5 membersExample: 3-member board
  • 2 elected by Common Stock (founders)
  • 1 elected by Series Seed Preferred (lead investor)
Example: 5-member board
  • 2 elected by Common Stock (founders)
  • 1 elected by Series Seed Preferred (lead investor)
  • 2 elected by Common and Preferred voting together (independent or CEO)
At seed stage, founders typically maintain board control. Investor control comes later (Series A typically).
2

Director nomination and election

Common Stock directors:
  • Nominated and elected by holders of Common Stock
  • Usually the founders
  • Typically CEO and/or co-founders
Series Seed Preferred directors:
  • Nominated and elected by holders of Series Seed Preferred
  • Usually representative from lead investor
  • Must not be “Disqualified Designee” (bad actor)
Mutual consent directors:
  • Nominated and elected by both classes voting together
  • Often independent directors
  • Or CEO (if not otherwise on board)
3

Changing board composition

Board size changes:
  • Requires approval specified in agreement
  • Usually requires Preferred Stock approval
  • Maintains board balance
Removing directors:
  • Common directors removable by common stockholders
  • Preferred directors removable by preferred stockholders
  • Each class controls its own representatives
Filling vacancies:
  • Vacancy in common seat filled by common stockholders
  • Vacancy in preferred seat filled by preferred stockholders
  • Maintains intended board composition

​
Transfer restrictions and drag-along

Stockholders can’t sell shares unless:
  1. Registered under Securities Act, OR
  2. Exemption available (e.g., Rule 144)
Exemption exceptions (no registration/opinion needed):
  • Rule 144 sales: If requirements met
  • Transfers to affiliates: Partners, members, stockholders of investor entity
  • Transfers to family: Spouse, lineal descendants/ancestors
  • Transfers to trusts: For benefit of family members
  • Transfers by will or intestacy
Condition: Transferee must agree to be bound by agreement
Don’t transfer shares without checking these restrictions. Violations can cause securities law problems.
180-day lock-up after IPO:All stockholders agree not to sell shares for 180 days after IPO, if:
  • Company or underwriters request it
  • Officers, directors, and 1%+ holders have same restriction
Purpose:
  • Prevents flood of selling after IPO
  • Stabilizes stock price
  • Standard underwriter requirement
Scope:
  • Can’t sell shares
  • Can’t short
  • Can’t enter into derivatives
  • Can’t hedge position
This is standard and non-negotiable for IPOs.
Forces minority stockholders to participate in approved sales:If a “Deemed Liquidation Event” (sale of company) is approved by:
  1. Majority of Common Stock (other than preferred), AND
  2. Majority of Preferred Stock, AND
  3. Board of Directors
Then all stockholders must:
  • Vote in favor
  • Sell their shares
  • Execute transaction documents
  • Deliver stock certificates
Why it exists:
  • Prevents small stockholders from blocking sales
  • Allows company to sell cleanly
  • Standard in all venture deals
Protections for dragged stockholders:
  • Representations limited to ownership, authority
  • Liability capped at pro rata share of proceeds
  • Several, not joint liability
  • Same consideration per share as others of same class
Drag-along is reasonable and necessary. Without it, one small stockholder could block a sale that everyone else wants.

​
From signing to closing

1

Sign definitive documents

After negotiation, all parties sign:
  • Stock Purchase Agreement
  • Restated Certificate of Incorporation
  • Board Consent
  • Stockholder Consent
Signature pages:
  • Company signs all documents
  • Each Purchaser signs signature page to Agreement
  • Key Holders sign Agreement
  • Directors sign Board Consent
  • Stockholders sign Stockholder Consent
Can be done via electronic signature (DocuSign, etc.)
2

File Restated Certificate

Company files Restated Certificate of Incorporation with Secretary of State.Delaware:
  • File online or by mail
  • Effective when filed or on specified future date
  • Usually effective same day
Certificate creates:
  • Series Seed Preferred Stock
  • Rights, preferences, privileges of each class
  • Conversion and voting provisions
3

Closing: Exchange funds for stock

Purchasers deliver:
  • Wire transfers to company account
  • Or checks
  • Or execute note cancellation agreements
Company delivers:
  • Stock certificates (if required)
  • Or updates cap table showing ownership
Closing occurs when:
  • All conditions satisfied
  • All documents signed
  • Funds received
  • Shares issued
4

Post-closing

Company must:
  • Update cap table
  • Issue stock certificates (if applicable)
  • File Form D with SEC (within 15 days)
  • File state securities notices (if required)
  • Update corporate minute book
  • Add new directors to board
  • Set up investor data room for ongoing reporting
Good practice:
  • Send closing memo to all investors
  • Thank everyone involved
  • Schedule first board meeting with new directors

​
Series Seed documents in detail

The Series Seed package provides complete, standardized documentation.
Automated document generation:CooleyGO provides free document generators for Series Seed:Input your terms:
  • Company information
  • Purchase price and valuation
  • Option pool percentage
  • Board composition
  • Major Purchaser threshold
  • Other key terms
Generates:
  • Preferred Stock Investment Agreement
  • Restated Certificate of Incorporation
  • Board Consent
  • Stockholder Consent
  • Other exhibits and schedules
Benefits:
  • Free
  • Standardized, market-accepted forms
  • Lawyer-drafted templates
  • Consistent with term sheet
  • Reduces legal fees
Even if you use CooleyGO, have your lawyer review the documents before signing. Automated generation is a starting point, not a substitute for legal counsel.
Series Seed documents are templates:You can customize:
  • Economic terms (price, valuation, option pool)
  • Board composition
  • Information rights threshold
  • Pro rata rights
  • Protective provisions (via certificate)
  • Specific representations (via disclosure schedules)
What you shouldn’t change:
  • Core structure and organization
  • Standard representations and warranties
  • Balanced provisions
  • Market-standard terms
Disclosure Schedules:
  • List exceptions to representations
  • “Subject to items disclosed on Schedule”
  • Lets you disclose known issues without breaching reps
Example disclosures:
  • Known IP disputes
  • Pending litigation
  • Material contracts
  • Capitalization exceptions
Series Seed vs. NVCA:
AspectSeries SeedNVCA
Target stageSeed (250K−250K-2M)Series A+ ($3M+)
ComplexityStreamlinedComprehensive
Length~30-40 pages~80-120 pages
Additional docsNone requiredIRA, ROFR, Voting, etc.
Reps & warrantiesReasonable for stageExtensive
Protective provisionsBasicDetailed
Anti-dilutionOptionalStandard
Best forSeed roundsLater rounds
Future Rights provision: Series Seed includes: “Series Seed will be given the same rights as the next series of Preferred Stock (with appropriate adjustments for economic terms).”This means Series Seed investors automatically get upgraded to next round’s rights, so you don’t need separate investor rights agreements now.

​
Common issues and how to address them

Problem: Cap table doesn’t match representationsExamples:
  • Agreement says 8M shares outstanding, really 8.5M
  • Forgotten stock grants or options
  • Expired options not properly canceled
  • Shares issued but not recorded
How to fix:
  1. Get accurate cap table before definitive docs
  2. Use cap table software (Carta, Pulley)
  3. Reconcile with Delaware records
  4. Disclose any uncertainties on disclosure schedule
  5. Have lawyer review cap table
Cap table errors can kill deals. Get this right before you start definitive documents.
Problem: Founders or employees haven’t assigned IPRisk:
  • Company doesn’t own its IP
  • Breaches IP representation
  • Investors can refuse to close
How to fix:
  1. All founders execute IP assignment agreements
  2. All employees/contractors execute IP assignment agreements
  3. Retroactive assignments for past work
  4. Confirm no excluded inventions
  5. Complete before definitive docs
Don’t leave this for closing day. Fix it early.
Problem: Outstanding notes/SAFEs complicate the roundIssues:
  • Notes convert along with new equity
  • Conversion dilutes new investors
  • Need to model dilution carefully
  • Some notes may have different conversion terms
How to address:
  1. Identify all outstanding convertible securities
  2. Calculate conversion price for each
  3. Model pro forma cap table post-conversion
  4. Show investors the fully-diluted picture
  5. Consider whether notes should convert now or later
In agreement:
  • Schedule 1 shows which investors are paying via note conversion
  • Agreement accommodates both cash and conversion
  • Clear mechanics for how conversion works
Be transparent with new investors about all convertible securities. Model the fully-diluted cap table and share it early.
Problem: Board hasn’t approved yet but investors want to signSolution: Condition the agreementStock Purchase Agreement can state:
  • “Subject to approval by Board of Directors”
  • Signing happens before board approval
  • Closing happens after board approves
But better:
  • Get board approval first (via consent)
  • Then sign definitive documents
  • Then close
See our board consent guide for how to obtain approval.

​
Best practices

1

Start with Series Seed templates

Don’t reinvent the wheel:
  • Use Series Seed documents as starting point
  • Or NVCA documents if Series A+
  • Modify only what’s necessary for your deal
  • Don’t create custom agreements from scratch
Investors and lawyers know these forms. Deviating too much raises questions.
2

Get organized before definitive docs

Before lawyers start drafting:
  • Clean up your cap table
  • Obtain all IP assignments
  • Get corporate house in order
  • File all required reports (stay in good standing)
  • Organize corporate minute book
This prevents surprises during documentation.
3

Compare definitive docs to term sheet

When you receive definitive documents:
  • Compare every provision to term sheet
  • Flag any discrepancies
  • Check that economic terms match exactly
  • Ensure no new provisions snuck in
Definitive docs should implement term sheet, not add new terms.
4

Schedule signing and closing carefully

Plan the sequence:
  1. Get board approval (can happen anytime before closing)
  2. Sign definitive documents
  3. File Restated Certificate with state
  4. Close: exchange money for stock
Don’t try to do everything same day. Give 2-3 days between signing and closing to handle any issues.
5

Maintain excellent records post-closing

After closing:
  • File all documents in corporate minute book
  • Update cap table immediately
  • File Form D within 15 days
  • Set up investor data room
  • Schedule first board meeting
  • Begin financial reporting to Major Purchasers

​
Resources and templates

Series Seed documents

Complete Series Seed package on GitHub

CooleyGO generator

Free automated document generator for Series Seed

NVCA model documents

Model documents for Series A and later rounds

Cap table tools

Manage your cap table:

​
Next steps

Board consent

Obtain board approval for your stock issuance

Stockholder consent

Get stockholder approval for certificate amendment

Term sheets

Review term sheets to understand what drives these agreements

Build docs developers (and LLMs) love

Get started for freeTalk to us