A preference share, unlike an ordinary share, does not give the right to vote at a general meeting of shareholders, and the privileges of the owner of such a share are that the charter must determine the size of the dividend and / or the value paid upon liquidation of the company (liquidation value), which are determined in hard cash or as a percentage of the par value of preferred shares. However, the law determines the cases when the owner of the preferred share receives the right to participate in the general meeting of shareholders with the right to vote when deciding issues:
- on the reorganization and liquidation of the company;
- on amendments and additions to the charter of the company, limiting or modifying the rights of shareholders, owners of preferred shares.
- The owner of preferred shares also receives the right to vote if a decision is made at the annual meeting of shareholders on non-payment or incomplete payment of the established dividends.
The law on joint stock companies provides for the issue of one or more types of preferred shares. There are two types of preferred shares: cumulative and convertible.
Shares are considered cumulative for which the unpaid or incompletely paid dividend, the amount of which is determined in the charter, is accumulated and paid out later. The issue of such shares can attract investors with the possibility of increasing their income. If the owner of a preferred share of this type decides to sell it without paying dividends, he will be forced to sell it at a low market value. Whoever buys such a share has the opportunity to receive dividends for the entire period during which they were not paid.
The owner of a cumulative preference share receives the right to vote for the period during which he does not receive a dividend, and loses this right from the moment of payment of all dividends accumulated on the specified share in full.
When issuing convertible preferred shares, the possibility and conditions of their conversion into ordinary shares or preferred shares of other types must be determined. When issuing convertible shares, it is necessary to establish the period, proportionality and exchange rate. The period for the exchange of convertible shares must be at least three years. The conversion rate is set at the time of issuance of such shares and is slightly higher than the current market rate of ordinary shares at that time. Therefore, if during the specified exchange period the current market rate of ordinary shares exceeds the conversion rate, the owner of the convertible preferred share has the opportunity to receive additional income by exchanging his share at the conversion rate and immediately selling it at a higher rate. This opportunity allows the issuer to set dividends on convertible preferred shares lower than on other types of preferred shares. If the exchange period is over, and the owner of the convertible preferred share has not exchanged it for any other share, it is recognized as a direct (common) preferred share.
The charter may give the owner of a convertible preference share the right to vote at a general meeting of shareholders, with the number of votes corresponding to the number of ordinary shares for which the preference share belonging to him is exchanged. By law, a joint stock company can issue two or more types of preferred shares. Revocable, or revocable, preferred shares are widely used abroad. Their essence lies in the fact that they can be redeemed, unlike ordinary ones, which cannot be extinguished as long as the joint-stock company that issued them exists. A joint-stock company can provide revocation or return in different ways:
- Ransom with a premium. The premium acts as a kind of compensation to the investor for the fact that he loses his source of income. In this case, the redemption can take place in its entirety at any time after notification of the redemption or in parts within the established time frame. Repayment takes place at a price that is set above par, taking into account unpaid dividends.
- Redemption through redemption or deferred funds. The formation of the buyout fund makes it possible to buy back a certain part of the preferred revocable shares through the secondary market annually and thereby contribute to the stabilization of the market for their shares. The deferred fund is formed by the joint stock company in order to make a redemption at a premium.
- Providing guarantees for early redemption at the initiative of the holder by issuing so-called reactive preferred shares. They are resorted to when the issuer does not have absolute guarantees of the withdrawal of preferred shares by redemption through redemption. When issuing such types of preferred shares, the holder himself sets the maturity date, notifies the issuer about it and, upon maturity, presents them.
The joint stock company can issue preferred shares with participation interests. Such shares entitle its owner not only to a fixed dividend established at its issue, but also to an additional dividend if the dividend on ordinary shares exceeds it by the end of the year.
In foreign practice, preferred shares with a floating dividend rate, focused on the yield of any generally recognized securities (for example, in our practice, on the yield on T-bills), are spreading.
Guaranteed preferred shares may be issued. Such shares may be issued by subsidiaries. In this case, the preference dividend is guaranteed by the reputation of the parent organization. This should attract investors to buy shares in the subsidiary.
In Russia, there are specific preferred shares: type A and B. They appeared in the course of total privatization. Type A preference shares were issued at the time of the creation of open joint-stock companies and were intended for employees of the converted enterprises, who received them free of charge. The number of type A preferred shares is 25% of the authorized capital, and 10% of net profit is allocated for the payment of dividends on these shares. These shares give the owners the right to attend the annual meetings of shareholders, make proposals on the issues discussed, but do not give the right to vote. The owners of such shares have the right to sell them freely.
Type B preference shares were issued against the share of the authorized capital belonging to the property fund, and the property fund became the owner of such shares, which also received them free of charge. To pay dividends on such shares, 5% of net profit is sent, but the amount of the dividend on them should not be lower than the dividend paid on ordinary shares. The number of such shares should not exceed 25% of the authorized capital. The property fund, which is the holder of shares of this type, has the right to freely sell them to an unlimited number of buyers without the consent of other shareholders, but when they are sold, they are automatically converted into ordinary shares. The holder of type B preferred shares does not have the right to vote, although he can attend the meetings of shareholders and make his proposals on the issues discussed.
Under the new legislation, preferred shares can be given a number of properties. Thus, the charter of a joint-stock company may provide for the issue of cumulative shares. The cumulative property assumes that dividends or their certain part in case of non-payment are accumulated and paid in full subsequently.
Another property of preferred shares is conversion. In this case, the owner of a preferred share is given the right to exchange it for a share of another type. In this case, the charter may provide for the right to vote on such preferred shares.
So, preferred shares:
- practically risk-free;
- their dividend rate may even exceed the rate on ordinary shares;
- but they do not allow the owner to participate in the management of the organization.
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List of reliable and proven MFIs
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Actual information
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Comprehensive data
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Benefits of online services for microfinance companies
Microcredit organizations are popular because here:
Benefits of online MFIs
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Features of IFC
- in some, they do not serve persons under the age of 21;
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How to find a profitable loan?
You need to select the most attractive loans by analyzing various criteria:
Every microloan site has a handy loan calculator. It makes it possible to automatically calculate the amount of forthcoming loan payments, based on the selected conditions of a specific loan agreement.
Terms of use of loans
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Preference shares- This is a special type of equity securities, which, unlike ordinary shares, have special rights, but also have a number of specific restrictions.
Preferred shares are a widespread financial instrument in Russia and in the world.
It allows the owner to receive a guaranteed income based on the dividend rates offered by the issuer of the securities.
Also, in some cases, the holder of such shares can influence the company's development strategy.
Benefits of Preferred Shares
Preferred shares have a number of advantages for the investor when compared to common securities.
First, almost always the owner of preferred shares is guaranteed some kind of income.
Namely, fixed income is accrued on preferred shares, in contrast to ordinary shares, which depend on the profit of a joint-stock company.
However, dividends are not paid if the company incurred losses.
Secondly, funds for the payment of dividends are allocated to the holders of such securities as a matter of priority.
That is, holders of preferred shares also have the right to receive part of the property of a joint-stock company in the event of its liquidation, before it is divided among other owners.
Third, dividends on preferred shares are usually fixed in the total amount of net income.
In addition, these shareholders may have additional rights specified in the statutory documents of the company.
For example, they may, subject to certain conditions, convert their preferred shares to.
Disadvantages of preferred shares
There are also disadvantages of owning preferred shares:
The issuing company may demand the share back from the shareholder without explaining the reasons, while fully compensating for the damage with interest;
Preferred shares often do not carry voting rights. That is, holders of privileged rights are deprived of the right to vote and, thus, are deprived of the opportunity to participate in the management process of a joint-stock company and make decisions important for the company;
Fixed dividend amount. Often the amount of dividends is indicated when issuing securities of this type and does not depend on the size of the company's profit, which, when the profitability of the business increases, entails a proportional decrease in the yield of these securities.
How Preferred Shares Differ from Ordinary Shares
The very name “preferred” shares means that such shares provide additional opportunities and rights, so to speak, a special status.
As a rule, these benefits include the payment of guaranteed dividends.
That is, the owner of preferred shares will receive payments regardless of how the shareholders are doing - the joint-stock company will receive profit or loss.
Also, unlike ordinary shares, preferred shares give the right to receive a share of the company's property after its liquidation.
That is, the preferred shareholder will receive a predetermined amount from the joint stock company.
For such benefits, the owner of preferred shares is deprived of the opportunity to vote and influence the decisions of the joint stock company.
Thus, the owner of such shares is an indifferent investor, so to speak, not a co-owner of the business, which cannot be said about those who own ordinary shares.
However, some cases of privilege may provide just an impact on the affairs of the firm. In this case, the charter of the joint-stock company provides for the ratio of votes of the owners of ordinary and preferred shares, for example, 1: 2. So, it turns out that the owner of one share with the privilege has two votes.
Certain cases provide for the right to influence the affairs of the firm and to participate in meetings for those owners who cannot vote.
Such cases are also provided by law to protect the interests of the owners. Thus, the owners of all shares issued by the company can influence decisions related to the liquidation or reorganization of the company.
There are also issues related to shareholders that cannot be resolved without their participation. For example, with a decrease in guaranteed dividends.
If the JSC is not able to pay the guaranteed dividends, then the preferred shareholder gets the full right to participate in the meetings of the company on all issues.
It is also worth noting that privileged shares can be convertible and cumulative.
Rights of holders of preferred shares
Holders of preferred securities, along with the main shareholders, receive a share in the authorized capital of the company and have the right to attend general meetings.
Despite the fact that the holder of such securities does not have the right to vote, he can participate in meetings of shareholders, claim a share of the property in the event of the liquidation of the organization.
Voting Admission
In general, holders of preferred shares are not allowed to vote.
An exception may be cases when decisions taken at the appropriate negotiations affect the personal interests of the owners of securities.
In particular, if there are particularly important issues on the agenda of the meeting, holders of preferred assets can vote. These may be issues reflecting the procedure for a possible reorganization of a company or liquidation of a company, those related to the introduction of amendments to the charter, which are related to the rights of holders of preferred shares or, for example, to the payment of dividends.
Types of preferred shares
Preferred shares are divided into classes with different scope of rights.
According to the Law of the Russian Federation "On Joint Stock Companies", there are basically two main types of preferred shares: cumulative and convertible.
Dividends on cumulative preferred shares may not be paid in ordinary reporting periods by decision of the general meeting of shareholders if there is no profit or it is completely directed to the development of the company.
At the same time, the obligation to pay the lost income remains.
Dividends are accumulated and paid after the stabilization of the financial position of the joint stock company.
That is, the feature of cumulative preferred shares is the accumulation of dividends. Holders of cumulative preferred shares have the right to accumulate unpaid dividends, accrue and pay them in the next period after the missed period. In this case, dividends are not subject to periodic payment.
The holder of a cumulative share acquires the right to vote at the shareholders' meeting for the period during which he did not receive dividends, and loses it after the payment of dividends.
Convertible preferred shares can be exchanged by the owner of the shares for a specified period for ordinary shares or another type of preferred shares.
When such securities are issued, the exchange rate, proportionality and exchange period are determined.
There are also the following types of preferred shares:
non-cumulative, for which unpaid dividends are not added to dividends of subsequent years;
unconverted, which cannot change their status;
with participation interests, which entitle the holders of these shares to receive additional dividends in excess of the stipulated dividends.
Outcomes
The advantages of preferred shares are the shareholder's right:
receive a fixed income or income in the form of a percentage of the value of shares, or a certain amount of money, which is paid regardless of the results of the joint-stock company;
to receive dividends in the first place;
for preferential participation after the satisfaction of creditors' claims in the distribution of the property remaining with the joint-stock company during its liquidation;
for an additional payment if the amount of dividends paid on ordinary shares exceeds the amount of dividends paid on preferred shares.
Note that if you want to invest in a long-term investment, then the way to purchase preferred shares is the most appropriate.
Still have questions about accounting and taxes? Ask them on the accounting forum.
Preferred shares: details for the accountant
- Justification of receipts in terms of financial and economic activities
2000 ordinary shares and 800 preferred shares. According to the forecasts of the joint-stock company, by ... pcs. with a par value of 1 thousand rubles, preference shares - 500 thousand units. with a par value of 1 ... thousand rubles. Dividends on preferred shares are 8% of the par share ... let's calculate the annual amount of dividends on preferred shares: Receipts plan 2019 (2020, 2021 ...
- Key indicators of the economic power of the enterprise and the level of performance of its owner and management team
A share is a security, the circulation period of which is not limited and which confirms the property and non-property rights of its holder. It is one of the objects of civil rights, and therefore it is very important to determine the legal nature of shares, their types and resolve other issues.
Classification affiliation
The promotions are:
1) by the way the holder of rights is designated bearer (without designation of the name of the authorized person) or registered (with designation) securities;
2) depending on the nature of the expressed rights cash (guarantee the receipt of funds) and investment (guarantee participation in the management of a legal entity);
3) as well as equity securities, since:
- placed for sale in issues;
- assign to a set of property and non-property rights that may be subject to assignment, confirmation (certification) and unconditional implementation in compliance with the procedure established by law;
- have the same value and terms of exercising the right within the issue, regardless of the time of purchase of the share.
It is precisely because they are equity securities that they are objects of the securities market.
Shares can only be issued by joint stock companies: both closed and open.
The issue of shares by an open joint-stock company includes the conduct of an open subscription, registration of shares and their actual placement on the terms and following the results of the subscription. Public subscription to shares is the placement of shares among an unlimited number of persons. Closed joint stock companies, in turn, issue shares with a closed subscription. Closed subscription to shares is the placement of shares among a limited circle of persons, that is, among the shareholders of a company.
Simple, privileged, cumulative
Let's start with the shares, which are in any case in the joint-stock company. Ordinary shares are securities that confirm the right of their owner to receive a part of the profit of the organization (dividend), to participate in the management of a joint-stock company and the right to a share of the property of a legal entity upon its liquidation. The name of such shares speaks for itself.
Let's move on to the types of shares, the share of which in the amount of the authorized capital of a legal entity cannot exceed twenty-five percent. And these are preferred shares.
They are securities that:
- give their holder the right to receive a certain fixed, that is, stable interest;
- guarantee the owner the right of ownership upon liquidation of a legal entity;
- but they are not allowed to participate in the management of the joint stock company.
The decision to issue is taken by the legal entity itself.
Cumulative shares can be named as a type of preferred shares. Cumulative shares are this type of preferred shares, on which dividends are not paid, but are subject to accumulation in a special fund of the joint-stock company during the period when the joint-stock company experienced serious financial difficulties and could not distribute profits among the participants. The amount owed to the holder of cumulative shares is repaid before the payment of dividends on ordinary shares.
In relation to shares, it is important to understand the concept of book value and share value of shares.
The book value of the shares is the value of the shares according to the accounting and reporting data. It consists of the size of all non-current and current assets minus the long-term and short-term liabilities of the joint stock company.
The book value of common shares can be determined in two ways:
1) by deducting the par value of preferred shares. This option applies if issued by an organization;
2) the amount of equity capital, consisting of the statutory background, reserves and net profit.
At the same time, there is the following dependence: the higher the book value of the shares in comparison with the nominal value, the higher the degree of security of the shares with the assets of the legal entity. Conversely, if the book value is below par, then the stock has a low degree of asset backing. This is why stocks with a high book value are easier to sell.
At the same time, the book value does not reflect the real value of the assets. For example, land is accounted for at the purchase price. Over time, its value will change, but the book value of the share will not reflect this in itself.
The share issue value is the price at which the security was sold on its initial offering. It cannot be the same as the face value. The difference between the share premium and the par value, multiplied by their total number, is the share premium of the organization.
Innovations in promotions
The realities of today necessitated a change in the method of fixing the rights of securities holders, and, as a result, uncertified securities arose.
Uncertified shares – this is securities, the rights to which are confirmed by an entry in the securities register keeping system or an entry on the "depot" account. The register can be kept in hard copy or electronic form. A person who has the right to a security has the right to demand from the person who maintains the register, the issuance of a document certifying the assigned right. This will be an extract from the register of shareholders or an account statement of the owner. But you need to remember that the statement itself is not a security.
Uncertified shares have a number of advantages, namely:
- it is cheaper to issue uncertified shares. The need to endow documentary shares with several degrees of protection significantly increases their value. Especially when a small number of shares or a significant number of low-nominal shares are issued;
- loss of uncertified shares is possible only in the event of a computer failure;
- the possession of uncertified shares does not cause storage costs.
CUMULATIVE PRIVILEGED PROMOTION
(cumulative preference share) A type of preference share that gives its owner the right to receive dividends for previous years that have not been paid for any reason. Companies are not required to pay dividends on preferred shares if income for a given period is insufficient. Cumulative preferred shares ensure that, in the end, if the company returns to profitability in subsequent years, those unpaid dividends will be paid before ordinary dividend payments begin.
Finance. Explanatory dictionary. 2nd ed. - M .: "INFRA-M", Publishing house "Ves Mir". Brian Butler, Brian Johnson, Graham Sidwell, et al. General editorial: Ph.D. Osadchaya I.M.. 2000 .
Cumulative Preferred Share
A cumulative preference share is a share that guarantees dividends even if their payments are missed: the income lost by shareholders in a year that is not profitable for the company is compensated to them in subsequent years.
In English: Cumulative preferred stock
See also: Preference shares
Finam Financial Dictionary.
See what "Cumulative Preferred Share" is in other dictionaries:
- (cumulative preference share) A share, to the owner of which dividends, including any dividend payables for previous years, must be paid before any dividends are paid to the holders of ordinary shares. Economy.… … Economic Dictionary
- (cumulative preference share) A type of preference share, which gives its owner the right to receive dividends for previous years that have not been paid for any reason. Companies are not required to pay dividends on ... ... Business glossary
cumulative preference share- A type of preference share, which gives its owner the right to receive dividends for previous years that have not been paid for any reason. Companies are not required to pay dividends on preferred shares if ... ...
- (from lats cumulatio increase) share on which the accumulation of unreceived dividends occurs; preference share, the holder of which may receive dividends accumulated over a number of years when the issuing company due to poor financial ... ...
- (preference share) A share of a company that brings its owner a fixed percentage of income, rather than a fluctuating dividend. A preferred share is an intermediate form of a security between an ordinary share (ordinary ... ... Financial vocabulary
PRIVILEGED PROMOTION- a share, the owner of which has an advantage over the holder of ordinary shares in the distribution of dividends and property of the corporation in the event of its liquidation. P. a. give the right to vote only if dividends have not been declared on them for a certain ... Legal encyclopedia
preferred share- A share of a company that brings its owner a fixed percentage of income, rather than a fluctuating dividend. A preferred share is an intermediate form of a security between an ordinary share and a bond ... ... Technical translator's guide
- (see CUMULATIVE PREFERRED PROMOTION) ... Encyclopedic Dictionary of Economics and Law
Cumulative preferred share- (CUMULATIVE PREFERRED SHARE) A type of preferred share, the holders of which can receive dividends accumulated over a number of years during which the corporation has not paid them. At the same time, dividends will be paid before the dividends are received by the holders ... ... Finance and stock exchange: glossary of terms
- (non cumulative preference share) A preference share that is not eligible for a dividend from the profits of a subsequent year to offset the non-payment of a dividend in a year of low profits. compare: cumulative preference share ... ... Financial vocabulary