Protective provisions are the minority investor's veto rights. They define the actions a company cannot take without the investor's consent — even if the founders, the board, and a majority of shareholders agree. They are where minority investors actually have control.
The standard set
Standard NVCA-template protective provisions require investor consent to: amend the certificate of incorporation; create a senior or pari-passu series; redeem or repurchase shares; pay dividends; merge or sell the company; liquidate; change the board size; incur debt above a threshold; alter the protective provisions themselves. Each is designed to prevent a controlling shareholder from acting against the minority's interests.
These are consent rights, not information rights. They are voted as a series-class — Series A holders vote separately as a class on Series A protective provisions, even when they are a minority of overall shareholders.
Drag-along, tag-along, ROFR
Drag-along: lets the majority force minority holders to sell their shares in a sale of the company. Without it, minority hold-outs can block a sale. Tag-along: lets minority holders join a sale on the same terms as a controlling holder. Without it, minority holders can be left behind in a partial sale. ROFR (Right of First Refusal): the right to match a transfer of shares to a third party. Each manages a distinct conflict between majority and minority.
How they function in practice
Most protective provisions are never invoked. Their value is the option they create — the implicit threat that lets the minority investor be heard at the board, in negotiations, and in side-letter discussions. A board that knows a major action requires Series B consent will ensure Series B is comfortable before bringing it up.