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Convertible preference shares meaning
Published by a LexisNexis Corporate expert
What does Convertible preference shares mean?
Convertible preference shares are preference shares with preferential rights (typically a fixed or cumulative dividend and priority on a return of capital (liquidation preference)) that may convert into ordinary shares on agreed terms. Conversion is at a fixed ratio or under a pre‑determined formula (for example, linked to the company’s financial performance over a defined period, or to events such as an IPO or change of control).
The term is descriptive rather than statutory. In England and Wales, Scotland and Northern Ireland (Companies Act 2006) and in Ireland (Companies Act 2014), rights are set by the articles of association and the terms of issue or subscription, and operate as class rights.
Key features commonly include: who controls conversion (holder option, issuer option or automatic), the conversion price/ratio and adjustment mechanics (e.g. anti‑dilution), timing, treatment of fractional entitlements, and any shareholder or class consents to vary rights. Voting rights are often limited until conversion; on conversion the shares cease to be preference shares and rank as ordinary shares.
Frequently used in venture capital and private equity to balance downside protection with participation in equity upside. Usage is broadly consistent across the UK and Ireland.
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View the related Practice Notes about Convertible preference shares
PRACTICE NOTES
City Code Rule 10 acceptance condition: 50% threshold, DCSS Note 9, treasury and borrowed shares, new issues, CREST acceptances, Panel guidance and Rule 10.2 sequencing
This Resource Note summarises the principal provisions of Rule 10 of the City Code on Takeovers and Mergers (the Code) and signposts relevant materials, commentary and guidance from the Panel on Takeovers and Mergers (the Panel), together with Lexis+® UK analysis and resources, to deliver practical guidance on how Rule 10 should be interpreted and applied. Materials featured in this Resource Note include: the Code’s detailed Notes, which explain how the Rules are intended to be implemented, together with relevant Appendices addressing specific issues Practice Statements issued by the Panel Executive (the body that undertakes day‑to‑day takeover supervision and regulation) (Executive), giving informal guidance on how the Executive typically interprets and applies the Code Panel Statements published by the Panel (P/S) and Panel Instruments Public Consultation Papers (PCP) and Response Statements (RS) published by the Panel Annual Reports published by the Panel discussing general matters (Annual Reports) relevant Lexis+® UK resources Rule 10—Setting the scene Rule 10—The...
27 May
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PRACTICE NOTES
UK employment-related convertible securities: definition, scope, conversion triggers; distinction from restricted securities; considerations for flowering/growth and ratchet shares
Convertible securities are: employment-related securities (see Practice Note: What is an employment-related security?) securities that can be converted into instruments of a different description (see below) Accordingly, if a company grants securities to its employees or directors with restricted rights on issue (for example, no dividend entitlement or voting powers) but which may switch into ordinary shares on specified trigger events, those instruments constitute convertible securities. They are often seen in private equity or venture capital settings and include: convertible loan notes convertible preference shares For information on the income tax treatment of convertible securities, see Practice Note: Convertible securities—tax treatment. For the PAYE and National Insurance contributions (NIC) consequences of convertible securities, see Practice Notes: PAYE implications of employment-related securities and NICs implications of employment-related securities and securities options. What are convertible securities? Employment-related securities are convertible securities at the time of acquisition if: they provide the holder with...
22 May
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