COMPULSORY CONVERTIBLE PREFERENCE SHARES (CCPS)
Preference Share is a fixed-dividend security. The rate of dividend is decided at the Time of issue of shares. Also at the time of Liquidation / Bankruptcy of the Company, the repayment of Preference share is preferred over Equity Share.
CCPS is a type of Preferred Share/Stock that gives holders the Option to Convert their Preference Shares into a Fixed Number of Equity Shares of the issuing company after a specified date/ event.
Some Key Characteristics of Compulsory Convertible Preference Shares:
- CCPS carry a Preferential Right over Equity Shareholders when it comes to receiving Dividends and Repayment of Initial Capital.
- CCPS have a mandatory conversion feature, which means that at a predetermined date or upon the occurrence of certain events, they are automatically converted into Equity Shares of the Issuing Company.
- The conversion of CCPS into Equity Shares is Triggered by specific events, such as a particular date, the achievement of certain milestones, or the occurrence of predefined events.
- The conversion price is the price at which the CCPS are Converted into Equity Shares.
- CCPS may or may not carry voting rights. The terms of the CCPS agreement define whether the holders of CCPS have voting rights or not
The process of issuing Compulsory Convertible Preference Shares (CCPS) involves several steps
- The Board of Directors of the company needs to pass a resolution approving the issuance of CCPS
- The Board of Directors Conduct Board Meeting to appoint An Registered Valuer to determine the issue price.
- The issuance of CCPS requires the approval of the company’s shareholders. This is typically obtained through a special resolution passed during a shareholders meeting (Notice of Meeting Issue within 21 Days with Explanatory Statement)
- Prepare the necessary legal documentation, including a prospectus or an offering memorandum that outlines the terms of the CCPS issuance.
- File E-form MGT-14 for Special Resolution passed in Extraordinary General Meeting within 30 days, ensure filling of E-form PAS-3 with details of Allotment within 30 days of Allotment, with list of Allottees.
- Ensure compliance with ongoing Reporting & Disclosure Requirements, as per the Regulations Applicable to the CCPS issuance.
The specific forms required to issue Compulsory Convertible Preference Shares (CCPS)
- Prospectus or Offering Memorandum.
- Subscription Agreement-This agreement is entered into between the company and the investor(s) subscribing to the CCPS
- Board Resolutions.
- Shareholders Resolutions.
- Once the CCPS is allotted to the investors, share certificates or electronic statements are issued as evidence of their ownership of the CCPS.
- Depending on the jurisdiction and applicable regulations, certain compliance forms or filings may be required to be submitted to regulatory authorities or stock exchanges.
- The tenure of CCRPS is typically specified in the agreement or prospectus at the time of issuance.
- It can range from a few years to a specific maturity date. Once the tenure of the CCRPS expires, the company is required to repay the principal amount to the holders of CCRPS.
Penalties for non-compliance or violation of CCPS
- If the terms of the CCPS agreement are not adhered to, there may be Penalties related to the conversion of CCPS into equity shares.
- If the company Fails to pay the agreed-upon dividends or interest on CCPS, there may be penalties associated with late or non-payment.
- Non-compliance with applicable laws, regulations, or reporting requirements related to CCPS issuances could result in penalties imposed by regulatory authorities.
