During the fundraising phase of any expanding startup, Compulsorily Convertible Preference Shares (CCPS) are relevant. Finding the right approach to join the business is essential for both the start-up owners and the investors so that they can both profit from it and protect their interests. CCPS offers investors the chance to profit from equities with less risk. 

Investors are frequently drawn to equity ownership, but there is also a danger of lesser returns. Bonds with set yields are a popular safer choice, but doing so also means passing up the chance to make a significant profit. Here is a security that gives you the best of both worlds: a fixed return and the stock's profit potential. These are Convertible Preference Shares, often known as CCPS. You can find out more about them at the stock market training institute in Ahmedabad.

What are Preference Shares?

Preference Securities with fixed dividends are shares. At the moment these shares are issued, the dividend rate is determined. These shares will be repaid before equity shares in the event of the company's insolvency or liquidation. Additionally, CCPS does not reduce promoters' holdings. There are four major groups:

Convertible Preference SharesParticipating Preference SharesCumulative Preference SharesNon-cumulative Preference Shares

Convertible preference shares are further categorised into Compulsorily Convertible Preference Shares (CCPS) and Optionally Convertible Preference Shares.

What are Compulsorily Convertible Preference Shares (CCPS)?

CCPS provide investors with a fixed rate of return and are required to convert into equity shares of the issuing business after a predetermined time. Additionally predetermined at the moment of issue are the conversion terms.

CCPS are specifically provided to close the gap between the founder's and investors' valuation expectations, which are typically correlated with the company's success. These give investors the chance to take part in the expansion of businesses while reducing the risk that companies' valuations may decline if they don't meet their goals. The promoters of the company can raise money without having their ownership diluted at first by issuing CCPS.

How to issue Compulsorily Convertible Preference Shares?

Checking whether the company's authorised capital is divided into equity and preference share capital is a requirement before issuing CCPS. If not, you have two options: raise the authorised capital or reclassify the current structure. If the company has not fallen behind on the payment of a dividend payable on preference shares or the redemption of preference shares, it can move on with the following processes to issue compulsorily convertible preference shares:

organise a board meeting to select a registered valuer to establish the issue price;Conduct a board meeting after receiving the valuation report to approve the drafted offer letter and determine the issue price, dividend rate, conversion ratio, and other terms of the issuance of preference shares, subject to approval by shareholders at an extraordinary general meeting;Publish a notification of the general meeting's call with an explanation 21 days in advance;Organize a general meeting and, if necessary, pass a special resolution to amend the articles of incorporation or the memorandum to approve the CCPS;within 30 days, submit the eform MGT-14 for the special resolution adopted at the extraordinary general meeting;distribute the offer letter to the intended recipients in accordance with the conditions;payment of subscription fees by those who are interested;Hold a board meeting to discuss the items on the agenda below:CCPS distribution to subscribersIssue the share certificates Within 30 days following allocation, submit eform PAS-3 with details of the allocation.

Given the complications associated with the topic, it is always better to get in touch with professionals. Visit https://finwingsacademy.com/ to find out more about the topic. 

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