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Preferred stock, sometimes referred to as preference shares, are a special kind of equity that allows owners to receive dividends declared by the Company ahead of equity owners. Preference shares provide the shareholders with the special right to claim dividends during the Company’s lifetime and with the option to claim repayment of capital, in case of the winding up of the company.
Types of Preference Shares:
These are a kind of preference shares which are in certain circumstances or after a predetermined amount of time, allow the holder to convert their shares into equity shares of the issuing company. It may be optionally convertible preference shares or compulsorily convertible preference shares.
The Company may issue OCPS depending on their strategic goals. It is a strategic financial instrument that balances the need for raising capital with managing ownership and control dynamics within the company.
Following are some common causes:
These are the common reasons behind the issuance of OCPS shares by companies.
Procedural Steps for Conversion of Preference Shares (OCPS/CCPS):
The Company must first evaluate the maturity date of OCPS/CCPS and determine the conversion price as mentioned in the terms of OCPS/CCPS at the time of issuance. If the Company requires the Valuation to be done, then accordingly Board to appoint Registered Valuer and get the Valuation done for the same. Based on the Valuation, the Company will be able to fix the price of conversion and accordingly get the followed agenda passed in the Board Meeting.
If the Company is doing the conversion before maturity, then it is required to obtain consent of shareholders for change in terms via issuing letter with respect to the same in case of OCPS/CCPS or Company to approve the change in terms of preference shares by holding a separate meeting of such preference shareholders.
Also Read: Company Conversion From Private to Public and vice versa: a Step-by-Step Approach
Convening of the Extra Ordinary General Meeting to approve the following business:
Convening of Board Meeting for following agenda:
Issuance of Share Certificate pursuant to conversion of OCPS/CCPS into Equity shares.
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
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