Protective provisions are contractual rights granted to preferred stockholders in the certificate of incorporation giving them veto power over specific corporate decisions. Covered decisions include sale of the company, dissolution, charter or bylaws amendments, issuance of senior securities, large debt, declaration of dividends, and option pool increases, requiring preferred approval (typically majority of outstanding preferred or 60-66%) before the company can act. It is the control mechanism that gives investors veto rights independent of board composition, distinct from board-level approvals and stockholder votes on as-converted bases.
The standard list of protective provisions in modern venture term sheets: