Introduction and overview
The concept of conversion of Compulsory Convertible Preference Shares (CCPS) into Equity Shares is not governed by any section of the Companies Act, 2013 but if combined the certain Provisions of Companies Act, 2013, one can easily opine the conversion. By complying the provisions of Sections below mentioned conversion of Preference shares into Equity shares can be easily done.
Before getting into the article it is better to know what is Compulsory Convertible Preference Shares (CCPS). There are types of Preference Shares being issued by the Company and one of them is CCPS (Compulsory Convertible Preference Shares).
Compulsory Convertible Preference Shares (CCPS) are those shares which are issued with the terms that it can be converted into n number of equity shares after a period of time (that is mentioned in the contract or as discussed earlier).
Compliance of the Following Sections are required to be done:
- Section 173 and 174 for Convening of Board Meeting and Quorum for meeting of Board
- Section 55 For Redemption of Preference Shares
- Section 64(1)(c) for filing SH-7 for Redemption of Preference Shares
- Section 39(4) for filing of Return of Allotment
- Section 46 and 56 for issue of Certificate of Shares {Section 46 for the issue of Share Certificate and Section 56(4)(c) for delivery of Certificate of Shares}
- Section 88(1)(a) for Register of Members
Following are the steps required to followed for the Conversion of Compulsory Convertible Preference Shares into Equity Shares:
1. Call Board Meeting of the Board of Directors of the Company:
- Issue Notice Agenda of Board Meeting all the Directors at least 7 days before the date of Board Meeting. The meeting can also be called at shorter to transact urgent business items.
2. Hold the Board Meeting and pass Board Resolution for:
- Redemption of compulsorily convertible preference shares
- Conversion of redeemed preference shares into equity shares
3. E-forms Filing with the Registrar of the Companies:
- Filee-Form SH-7 within 30 days of the Board meeting for intimation of redemption of preference shares which are converted into equity shares with the following attachment:
- Copy of Board resolution approving conversion of Compulsory Convertible Preference Shares into Equity Shares
- File return of allotment in e-Form PAS-3 within 30 days of the Board Meeting with the following attachments:
- Copy of Board resolution approving conversion of Compulsory Convertible Preference Shares into Equity Shares
- List of allottees
4. Issue of Share Certificates:
- To all allottees within a period of 2 months from the date of allotment of Equity Shares issued under the common seal, if any of the company or signed by two directors or by a director and the Company Secretary, wherever company has appointed a Company Secretary.
5. Maintenance of Statutory Registers:
- Update the register of members in Form MGT-1 after conversion of Compulsorily Convertible Preference Shares into Equity Shares.
FAQs
CCPS are preference shares that can be converted into a specific number of equity shares upon the occurrence of certain events such as IPO, qualified financing or within 20 years[5] from the date of issuance or at the option of the holder. Investors choose to opt for CCPS when the valuation of the company is low.
Is conversion of CCD into equity shares taxable? ›
While the conversion of the CCDs into equity shares is not treated as a taxable transfer, the transfer of CCDs to a third party is taxed as capital gains where the same are held as capital assets.
Can preference shares be converted into equity shares? ›
Convertible preference shares are those shares that can be easily converted into equity shares. Non-Convertible preference shares are those shares that cannot be converted into equity shares.
What is the conversion of Ocps? ›
Conversion Option: The OCPS holders have the option to convert their shares into equity within a specified period, typically between two to five years from the date of issuance, subject to predetermined conditions.
How to convert CCPs into equity shares? ›
In case of listed companies, inform the STOCK EXCHANGE with which shares of the company are listed atleast 2 days before the Board meeting. Convene and hold a Board Meeting for passing the resolution for conversion of compulsorily convertible preference shares into equity shares of the company.
Can CCPs be bought back? ›
Yes, it is possible. The procedure shall be the same as the one prescribed under Sections 68, 69, and 70 of the Companies Act 2013 and relevant rules.
Can CCD be considered as equity? ›
CCDs are treated as equity rather than debt under FEMA regulations and IBC from the date on which the CCDs are issued.
Which is better CCD or CCPS? ›
If you are looking for higher returns, CCDS is a better option as it is compulsorily convertible into equity shares after a specific period. This means that you have the potential to earn higher returns than CCPS.
Are share class conversions taxable? ›
Class B shares commonly only incur back-end deferred sales charges which decrease over time. After a specified time period, these shares are often converted to Class A shares. The conversion is a non-taxable event.
What are the benefits of compulsory convertible preference shares? ›
CCPS, or Compulsorily Convertible Preference Shares, are a key element of startup financing. These shares carry certain terms—if an early investor has CCPS, he can have more rights than other investors who come in later at a higher valuation.
Compulsorily convertible Preference Shares are those shares, which once the shares are converted, there is no obligation on the part of the company to redeem them since they are no longer preference shares.
Which type of preference shares can be converted into equity shares? ›
Convertible Preference Shares
Convertible shares are fundamentally those shares which enable holders to get them converted into equity shares at a fixed rate.
How do I withdraw from OCVS? ›
Please contact OCVS at 407-317-3327 in order to withdraw your student from the OCVS full time program.
How to go to a school you're not zoned for in Florida? ›
Each district school board and charter school must adopt a controlled open enrollment plan that allows a parent from any school district in the state to enroll his or her child in and transport his or her child to any public school that has not reached capacity.
Does Orange County have school choice? ›
Choice Programs in the Orange County Schools
You may choose to apply for your child to attend a Choice School or participate in a Choice Program at a traditional school. Contact the schools or follow the links below for more information. Hillsborough Elementary School (K–5) is a year-round school.
What are compulsorily converted preference shares? ›
Compulsorily Convertible Preference Shares (CCPS) are a type of preference shares issued by a company with a mandatory conversion feature. These shares are a hybrid financial instrument that combines elements of both preference shares and convertible debentures.
Why would a company convert preferred stock to common stock? ›
Converting preferred stock into common stock usually occurs in the context of liquidation. Most preferred shareholders have a liquidity preference, which in turn allows them to receive a specified amount of money before common shareholders are eligible to receive anything.
What are the benefits of CCPS over equity? ›
Priority in Receiving Dividends: CCPS holders have priority over common stockholders in receiving dividends, which can provide a stable income stream. Reduced Risk: CCPS are generally considered a low-risk investment, as they have priority over common stock in receiving dividends and in the event of liquidation.
What is the meaning of conversion of shares into stocks? ›
To complete the conversion of shares to stocks, the company will transfer the equivalent of a company's stocks to previous shareholders. When this is done, the company will begin to issue stocks instead of shares to intending investors.
