What governs the determination of preferred stock rights in mergers?

• A. Rights are inferred from market practice
• B. Rights automatically apply in mergers
• C. Rights depend on the board's discretion
• D. Rights are determined strictly by charter language

Answer: (D)

In corporate law, the rights attached to preferred stock are fixed by the charter and the designation documents that created those shares. Those documents spell out liquidation preferences, convertibility, voting rights, and any protective provisions. A merger doesn’t by itself rewrite those terms; it operates within the framework already set in the charter. If any changes to those rights are required, they must follow the charter and designation rules, often needing charter amendments and shareholder consent. While merger agreements can exchange or cash out preferred interests under specified terms, the fundamental rights remain defined by the charter language, making it the controlling source in mergers.