Full Ratchet

Full Ratchet refers to an anti-dilution protection mechanism whereby the price per share of the preferred stock of a previous investor is adjusted downward due to the issuance of new preferred shares to a new investor at a price lower than the previous investor originally received. The previous investor’s preferred stock is repriced to match the price of new investor’s preferred stock. Usually as a result of the implementation of a Full Ratchet, company management and employees who own a fixed amount of common shares suffer significant dilution.