Benchmark Capital Partners IV, LP v. Vague

Investors will usually negotiate protective provisions in a corporate charter that define the balance of power or certain economic rights as between the holders of junior preferred stock and senior preferred stock.  Protective provisions can be negotiated to prevent shareholders of the board from making adverse changes to the rights of series investors. Such protective provisions must be carefully crafted because courts will presume any rights or obligation beyond those which sophisticated parties have negotiated for themselves.

In the case that follows, investors challenge a transaction structured for the sole purpose of subverting the terms of Series A investors.