How to raise capital without losing control?
How to raise capital without losing control? The logic of preferred shares and cumulative dividends.
Is the only way to win an investor’s heart by offering a larger ownership stake and more voting power? Not necessarily.
Often, a well-structured class of preferred shares is enough to provide what investors are looking for – priority dividends and a clear distribution order if the business ever “stops”.
Preferred shares allow a startup or a company planning to raise investments to align its capital needs with investor expectations. Here, the dividend logic is defined in advance – making it easy to communicate, implement, and adapt to the company’s specific growth stage. This is especially relevant when attracting investors without diluting the main shareholders’ influence over strategic decisions.
At the same time, a clear dividend and liquidation policy opens the door to a broader investor base, including those who prefer regular income and investment protection over day-to-day involvement in corporate governance. Over time, such a structure strengthens the company’s reputation as a transparent and professional issuer capable of offering not only a growth vision but also disciplined financial architecture.
The cumulative dividend mechanism is a cornerstone of preferred share value. If dividends are not paid in certain years, the right to them remains and must be settled in later periods before any payments to common shareholders. For investors, this means a more predictable income flow and less uncertainty, while for management – a clear signal of financial discipline to the market and credit institutions.
In practice, preferred shares act as a bridge between debt and common equity: they provide income priority but maintain balance in control, as they may carry limited or no voting rights depending on the agreement. Such balance is especially valuable when the goal is to raise capital without diluting strategic decision-making power while attracting investors who value regular returns and clearly defined protection mechanisms.
The liquidation procedure also gives this structure tangible meaning. In the distribution order, once the company’s creditors have been satisfied, the accumulated dividends are paid to holders of preferred shares with cumulative dividend rights. The remaining assets of the liquidated company are distributed among shareholders in proportion to the nominal value of their shares. Such a clearly defined payment priority usually reduces the required risk premium, improves negotiation positions, and helps investors assess potential risks before making decisions.
To ensure preferred shares work not only “on paper”, precise legal architecture is essential. In practice, granting preferred shareholders specific property and/or non-property rights under the chosen model usually requires a notarial amendment of the company’s articles of association and registration of changes in the Register of Legal Entities. The articles should clearly describe the dividend formula and cumulative dividend mechanism. The clearer these provisions are, the easier it is to implement them without interpretation or disputes – and for investors to evaluate risks and make informed decisions.
If you are considering raising capital or restructuring your shareholding, I invite you to get in touch. Together, we can assess your startup’s or company’s situation, discuss dividend and preferred share models, and prepare the necessary articles of association provisions to strengthen investor confidence and make your capital structure more transparent and resilient.
