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Feb 20, 2014

Beware the Cumulative Dividend

In the typical venture capital deal, the preferred stock issued to investors will have a "dividend preference" in the form of a right to receive dividends at some rate prior and in preference to payment of any dividends on the common stock. The critical point is that absent the inclusion of the word "cumulative" (or in some constructions the words "cumulate" or "accumulate;" you get the idea) there is no requirement that dividends be declared and paid, or, if not declared and paid, that they are carried over to future years.
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