Convertible preferred shares. Conversion and redemption of preferred shares Preferred shares convertible into ordinary shares

Some preferred shares may be converted into common shares of the issuer. This feature gives the holder the right to convert a portion of the preferred shares into a predetermined number of shares of the issuer's common stock. Convertible preferred stock is preferred stock with an embedded call option on the common stock. However, most preferred stock issues are also callable, which effectively allows the issuer to force preferred stock holders to either convert their preferred stock into common stock or sell it in exchange for cash.
To understand what happens with callable preferred stock, we need to explain some terms. First, there is the conversion value of preferred shares; it is equal to the number of common shares into which one preferred share can be converted, multiplied by the current price of one common share. Secondly, this
the actual price of the call, equal to the sum of the nominal price of the call, valid at the time of the call, plus all accrued dividends.
Obviously, when deciding whether to convert or surrender shares, the investor will be guided by considerations of his own benefit. If the effective call price is higher than the conversion value, the preferred stockholder will surrender the security in exchange for its redemption value. If the conversion value is higher than the actual call price, then the holder will convert his preferred shares into common shares. Companies typically call preferred shares when they are “in the money” (and therefore the conversion cost exceeds the call price). Thus, the recall of a preferred share in an “at-the-money” situation is called a “forced recall.”
As an example of callable and convertible preferred stock, consider the preferred stock issued by Western Gas Resources with an annual cash dividend of $2.6250 per share, payout
which are produced quarterly. Example 12.7 shows the Bloomberg screen for this issue's preferred securities. Each of these preferred shares is convertible into 1.2579 shares of common stock at any time prior to December 31, 2049. The preferred shares were callable at $50.79. The par price is a conversion value equal to the market price of a common share ($30.61) multiplied by the number of common shares (1.2579) into which the preferred shares can be converted. Accordingly, the premium is the ratio of the market value of preferred shares to the conversion value, expressed as a percentage. Investors who purchase common stock through preferred conversion pay a premium because the conversion feature is an embedded call option on the common stock that is converted only when it is in the investor's best interest to do so. An investor's downside risk is limited to the direct value of the preferred stock (i.e., the value of the convertible preferred stock without the conversion option).
Convertible preferred shares with special properties
In the mid-1990s. There has been a surge in innovation in the special feature convertible preferred stock sector. Next we will look at their main types.
Trust preferred securities
Trust Company Preferred Securities (TOPrS) are also convertible preferred shares. They differ from convertible shares described above in that dividends on them may be tax deductible for tax purposes; at the same time, they have a fairly high rating from rating agencies. The master issuer forms a business trust in Delaware to issue securities - the securities are guaranteed by the master issuer. In the case of TOPrS, the tax privilege in the form of exemption of 70% of dividend payments from income tax does not apply, and the issuer can defer the payment of dividends for up to 20 quarters (5 years). However, if there is a dividend payment deferral, the primary issuer cannot pay dividends to holders of common or preferred shares, so TOPrS dividends are accrued and compounded quarterly. TOPrS are generally callable starting three to five years from the issue date and mature in 20 to 30 years. Due to the specifics of taxation and the possibility of deferring dividend payments, TOPrS have a relatively higher dividend yield than other preferred shares.
Variety of abbreviations
There are many convertible preferred instruments that provide investors with higher dividend yields and the opportunity to realize the growth potential of common shares through conversion at
- 295 - preference shares. Dividend Enhanced Convertible Stocks (DECS) from Salomon Smith Barney and Preferred Redeemable Increased Dividends Equity Securities (PRIDES) from Merrill Lynch are two notable examples of such instruments. These convertible preferred securities offer high dividend yields, mandatory conversion at maturity (usually three to four years), and conversion factors that adjust for declines in value as prices of the underlying common stock rise, thereby limiting their upside potential.
Another similar type of convertible preferred security is the Preferred Equity Redemption Cumulative Stock (PERCS) from Merrill Lynch. PERCS also provide a high dividend yield and require mandatory conversion at maturity, but limit the upside potential for the investor by adjusting the conversion rate at maturity so that investors receive a fixed dollar amount of common stock.

Buying stocks always carries the risk of losing money, but avoiding stocks altogether means you won't be able to make a good profit. However, there is one security that can help solve this dilemma for some investors: convertible preferred stock offers the security of a fixed rate of return plus the opportunity for capital appreciation. Here we'll look at what these securities are, how they work, and how to determine when a conversion is profitable.

What are convertible preferred shares

These shares are corporate fixed income securities that an investor can choose to convert into a specified number of shares of a company's common stock over a specified period of time or on a specific date. The fixed income component provides a stable income stream and some capital protection for investors. However, the ability to convert these securities into shares allows the investor to benefit from rising share prices.

Convertibles are especially attractive to those investors who want to participate in the growth of high-growth companies while being insulated from price declines if the stock doesn't live up to expectations.

Opportunities for investors

To demonstrate how convertible preferred stock works and how the stock benefits investors, let's look at an example. Let's say Acme Semiconductor issues 1 million shares of convertible preferred stock at $100 per share. These convertible preferred shares (because they are fixed income securities) give holders priority over common shareholders in two ways. First, convertible preferred shareholders receive a dividend of 4.5% (assuming Acme's earnings remain sufficient) before any dividends are paid to common shareholders. Second, convertible preferred shareholders will be ahead of common shareholders in returning capital if Acme ever goes bankrupt and its assets have to be sold off. However, convertible preferred shareholders, unlike ordinary shareholders, rarely have voting rights.

By purchasing Acme Convertible Preferred Stock, the worst investors will ever receive a $4.50 annual dividend for each share they own. But these securities offer owners the potential for even higher returns: If convertible preferred shareholders see Acme stock rise, they may have the opportunity to profit from that rise by converting their fixed-income investment into equity. On the reset date, shareholders of Acme Convertible Preferred Stock have the option to convert some or all of their preferred shares into shares of common stock.

Determining conversion profit

The conversion ratio represents the number of shares of common stock that shareholders can receive for each preferred share that is converted. The conversion ratio is set by management prior to issuance, typically with management of the investment bank. For Acme, assume the conversion ratio is 6.5, allowing investors to trade preferred stock for 6.5 Acme shares.

The conversion ratio indicates what price the common stock must trade for the preferred stockholder to profit from the conversion. This price, known as the conversion price, is equal to the purchase price of the preferred stock divided by the conversion factor. So for Acme the market conversion price is $15.38 ($100/6.5).

In other words, Acme common stock should trade above $15.00. 38 for investors to receive from the conversion. If the stock converts and goes below $15. 38, investors will suffer a capital loss on their investment of $100 per share. If the common stock ends at, for example, $10, then the convertible preferred shareholders will only receive a common share worth $65 ($10), in exchange for their $100 preferred stock. ($100 represents the par value of the preferred shares.)

Conversion Bonus

Convertible preferred shares can be traded in the secondary market, and market price and performance are determined by the conversion premium, the difference between the par value and the value of the preferred shares if the shares were converted. As shown above, the value of a converted preferred share is equal to the market price of the common stock multiplied by the conversion factor. Let's say Acme shares are currently trading at $12, which means the value of the preferred stock is $78 (12 x 6 5). As you can see, this is significantly lower than the parity value. So, if Acme shares are trading at $12, the conversion premium is 22% [($100 - $78) / 100].

The lower the premium, the more likely it is that the market conversion price will match the overall share price up and down. Higher-end convertibles act more like bonds in that there is less likely to be a chance for a profitable conversion. This means that interest rates can also affect the price of convertible preferred shares: for example, the price of bonds, the price of convertible preferred shares usually declines as interest rates rise: a fixed dividend looks less attractive than rising interest rates. Conversely, as rates fall, convertible preferred shares become more attractive.

The Bottom Line

Converts appeals to investors who want to participate in the stock market without feeling like they are taking wild risks. Trading a security like a stock when the price of the common stock moves above the conversion price. If the stock price falls below the conversion price, the convertible trades just like a bond, effectively putting a price floor under the investment.

The issue of preferred shares can be used to redistribute corporate control.

The legislation does not establish a requirement that the par value of preferred shares must be equal to the par value of ordinary shares. Moreover, if preferred shares acquire voting rights, then each such share gives its owner one vote, regardless of its par value. If preferred shares were not previously issued, upon their issue the existing shareholders - holders of ordinary shares do not have a priority right to acquire preferred shares.

Thus, a shareholder or group of shareholders owning 75% of the company's shares has the opportunity to make a decision at a general meeting of shareholders on the issue and placement by private subscription of low-par preferred shares, the number of which will significantly exceed the number of previously issued ordinary shares. After a dividend has not been paid on these shares at least once, the owner of preferred shares will become the owner of a complete controlling stake at all subsequent general meetings of shareholders.

True, the implementation of such a scheme for redistributing corporate control requires care.

Firstly, the initiator must have a sufficiently large number of voting shares to allow it to obtain a qualified majority at the general meeting of shareholders necessary to make a decision to increase the authorized capital.

Secondly, one should be extremely careful in determining the placement price of preferred shares. We remember that the placement price of additional shares must correspond to their market value. Today, judicial practice has developed when minority shareholders appeal such decisions. If the shareholder proves that the placement price of low-par preferred shares does not correspond to their market value, then the court will with a high degree of probability declare the issue invalid. Thus, an unconditional recommendation when placing preferred shares in conditions where such a decision can be appealed is to set the placement price close to their real market value.

Thirdly, we should not forget about approving transactions to place additional shares as related-party transactions.

Art. 83 of the Law provides that, depending on its parameters, an interested party transaction can be approved either by the board of directors or by the general meeting of shareholders of the company. However, since paragraph 4 of this article provides that if the subject of a transaction or several interrelated transactions is property, the value of which, according to accounting data (offer price of the acquired property) is 2 or more percent of the book value of the company’s assets according to its accounting records as of the last reporting date , a decision can only be made by a general meeting with a majority vote of all shareholders who are not interested in the transaction - owners of voting shares; the option of a decision being made by the board of directors is of no interest in this case.

What needs to be taken into account when preparing a general meeting of shareholders, at which an interested party transaction for the placement of preferred shares will be approved?

First of all, you need to remember that if shares are placed directly to any shareholder or his affiliates
persons, this shareholder does not vote on this item on the meeting agenda. Thus, shares must be placed either to an independent (albeit formally) person, or the majority of other (disinterested) shareholders must agree with such placement and vote for it.

The second important point when holding such a general meeting is that the decision must be made by a majority vote of all shareholders not interested in the transaction. Moreover, in this case, the legislator requires that the majority be taken into account specifically from all disinterested shareholders, and not from disinterested shareholders who took part in the general meeting.

Practice shows that in “old” joint-stock companies that arose during the period of mass privatization, this condition is often very difficult to ensure. Indeed, the main block of shares is usually concentrated in the majority shareholders, and if they are interested parties in the placement of preferred shares, only minority shareholders will vote. However, many of them died, and no one inherited their shares; moved without notifying the registrar and do not receive notice of the meeting. Finally, they simply never go to meetings. If there are more than half of such shareholders, it will be impossible to make a decision to approve the interested party transaction. The only way out that the author sees in this case is to take measures in advance to ensure that the transaction for the placement of preferred shares does not fall under the definition of an interested party transaction given in the law.

Here is another way to change the “balance of forces.”

Current legislation provides for the possibility of consolidating shares of the company. That is, two or more outstanding shares of the company can be, in accordance with the provisions of Art. 74 of the Law, converted into one newly placed share. Such a decision will be made by a simple majority of votes of shareholders holding ordinary shares and can only apply to these ordinary shares.

Thus, the total number of outstanding ordinary shares may be reduced by any integral number. The number of preferred shares will remain unchanged.

Consequently, the number of votes of shareholders - owners of ordinary shares will be reduced, but there will be no votes of preferred ones. The situation will not change even if, as a result of the conversion, a number of shareholders will have fractional shares. Clause 3 art. 25 of the Law establishes that a fractional share provides the shareholder - its owner with the rights provided by a share of the corresponding category (type), in an amount corresponding to the part of the whole share that it constitutes. Consequently, even a share split into several parts will give only one vote in total. Thus, the goal of gaining more complete control over society will be achieved.

Let's consider another situation. A shareholder (group of shareholders) interested, for example, in placing company shares through a closed subscription or making certain changes to the charter, does not initially have a qualified majority of votes allowing such a decision to be made. However, he (his allies in this matter) has at his disposal preferred shares, the size of the dividend for which is determined in the company's charter, in an amount that, together with ordinary shares, allows this to be done.

If the number of votes belonging to such a shareholder turns out to be higher than 50 percent of the total number of votes of shareholders who took part in the general meeting of shareholders (taking into account the extremely low activity of shareholders, this figure may not be too large), such a shareholder has the opportunity to block the adoption of a decision by the general meeting of shareholders on the payment of dividends on preferred shares. And the preferred shares will become voting shares at the next meeting.

Third situation. A company that has issued both ordinary and preferred shares is about to make a decision that does not meet the interests of minority shareholders. If a dividend on preferred shares was previously paid, then such shares are not voted at the meeting. But Article 43 of the Federal Law “On Joint-Stock Companies” contains a list of situations when the general meeting of shareholders does not have the right to make a decision on the payment of dividends on preferred shares. For example, if the company meets the criteria of insolvency (bankruptcy).

If a shareholder identifies such a situation, he will be able to legally declare the decision of the general meeting of shareholders to pay dividends invalid (regardless of whether the dividends have already been physically paid), thereby dramatically changing the balance of power at the upcoming general meeting.

Let us draw the reader's attention to some subtleties of the current arbitration practice.

There have been cases when the annual general meeting of a joint stock company was not held or its holding was disrupted. Accordingly, no decisions were made at such a meeting on the payment of dividends on preferred shares. Will preferred shares become voting?

A number of lawyers consider it possible in this situation to consider the company's preferred shares as voting. However, judicial practice takes a different path, indicating that, within the meaning of the provisions of the Law, owners of preferred shares receive the right to vote if the annual meeting took place, but the issue of paying dividends on preferred shares was not resolved or a decision was made to refuse to pay dividends. Failure to make a decision on the payment of dividends due to the failure to hold a meeting or the adoption of a decision on non-payment of dividends at an illegal meeting does not provide the holders of preferred shares with voting rights.

There is also judicial practice based on a literal reading of the provisions of paragraph 5 of Art. 31 of the Law. According to it, the voting rights of preferred shares arise precisely in connection with the decision on non-payment or incomplete payment of dividends. If the decision to pay dividends is made, but the dividends are not paid, the right to vote does not arise.

Perhaps, what is common to all the scenarios discussed above is that when they are implemented, the majority shareholder (or group of shareholders) uses a dominant position in society to create a situation that actually infringes on the rights of minority shareholders. Today, all the described actions are absolutely legal. However, in recent years, the Federal Service for Financial Markets and the Ministry of Economic Development have repeatedly prepared bills that close the possibility of using the dominant position of majority shareholders. Thus, in various documents it was proposed to establish that the par value of the company's preferred shares cannot be lower than the par value of ordinary shares, or to establish that when placing preferred shares of any type, shareholders - owners of ordinary shares have the right of pre-emptive acquisition in an amount proportional to the number of shares they have ordinary shares.

Thus, it is likely that in the near future, most of the opportunities discussed above for using preferred shares to obtain or strengthen corporate control in a joint stock company will become illegitimate.

Preferred shares as an income payment tool

Let us dwell on the opportunities that preferred shares provide to the majority shareholder in making a profit.

Payment of income through dividends (we will make a reservation that further we are talking about residents of the Russian Federation) to individuals is beneficial in any case, since it is subject to a 9% tax, which is significantly more profitable than payment of other types of income. It is also convenient for legal entities making profit. In this case, when calculating income tax, its rate will be 0%, provided that on the day the decision is made to pay dividends, the organization receiving dividends has continuously owned at least 50 percent of the contribution (shares) for at least 365 calendar days. in the authorized (share) capital (fund) of the organization paying dividends or depositary receipts giving the right to receive dividends in an amount corresponding to at least 50 percent of the total amount of dividends paid by the organization.

As shown above, the majority shareholder - the owner of more than 75% of the voting shares of the company has the opportunity to become the sole owner of preferred shares and in accordance with the provisions of Art. 43 of the Law to actually withdraw any share of the company’s net profit in the form of dividends on them.

An essential point in receiving income on preferred shares, the amount of dividend on which (the procedure for determining it) is determined by the company’s charter, is the fact that declared (paid dividends) should not exceed this amount fixed in the company’s charter. Otherwise, there is a high probability that the decision to pay dividends on preferred shares will be appealed by the shareholders who voted against it in court. Of course, this circumstance is important only if the company has other shareholders who are not part of the group interested in paying such dividends.

Returning to what was said above, I would like to note another opportunity due to the relatively low level of taxation of dividend income for individuals. The placement of preferred shares to key employees of the JSC will actually allow them to pay part of their remuneration in the form of dividends. However, if we consider both complete chains of taxation (for payment under an employment contract and for payment in the form of dividends), starting from the receipt of revenue by the company to the payment of funds directly to an individual, it becomes clear that the question of the profitability of such a decision is not entirely simple.

The author does not consider it possible in the format of this article to dwell in detail on all the financial aspects of such a payment, however, in his opinion, the costs of society in any of the ways under consideration will, in general, be comparable. And of course, you need to remember that dividends can only be paid if there is a net profit in the company.

In addition, it makes sense to compare the benefits of paying remuneration through an employment contract or dividends when we are talking specifically about the company’s employees associated with it through labor relations. But in the course of JSC activities, situations often arise when interaction with certain individuals is extremely important and beneficial. At the same time, the possibility of concluding an employment contract with them is excluded or significantly complicated. In this case, the placement of preferred shares to such persons, allowing them to receive the necessary income, may be the optimal solution.

For quite a long time, the main problems preventing the spread of this practice were the impossibility of stopping payments on shares upon completion of cooperation and the fear of an unfavorable vote by their owners in cases provided for by law. They tried to solve them in various ways. Thus, advance receipt of “reverse” transfer orders was often used. However, this path cannot be considered legal.

There have been attempts to enter into repurchase agreements providing for the right to repurchase preferred shares after a certain period. But this option, from the author’s point of view, is unacceptable, because in accordance with the provisions of paragraph 13 of Art. 51.3 of the Federal Law “On Joint Stock Companies” in the event that the list of persons entitled to receive from the issuer dividends transferred under the first part of the repurchase agreement is determined in the period after the fulfillment of obligations to transfer securities under the first part of the repurchase agreement and before the fulfillment of transfer obligations securities under the second part of the repurchase agreement, the recipient of the dividend will be the one who was the shareholder on the date of compilation of such a list.

Existing judicial practice suggests that it is possible to prevent the voting of owners of preferred shares even in the event of non-payment of dividends to them. To do this, it is enough not to determine the size of the dividend on them. However, such securities in many cases will not suit their prospective purchasers.

Today, the author knows of only one option that allows, with a high degree of probability, to ensure the required regime for ownership of preferred shares and the termination of such ownership. Its implementation is subject to the provisions of Art. 32.1 of the Law on Joint Stock Companies, dedicated to the shareholders agreement.

A shareholder agreement may provide for the obligation of its parties to vote in a certain way at the general meeting of shareholders, to agree on a voting option with other shareholders, to acquire or alienate shares at a predetermined price and (or) upon the occurrence of certain circumstances, to refrain from alienating shares until the occurrence of certain circumstances, and also carry out in concert other actions related to the management of the company, its activities, reorganization and liquidation of the company.

Thus, it is possible to conclude a shareholder agreement, according to which the acquirer (owner) of preferred shares will not only be obliged to vote at the general meeting of shareholders in accordance with the instructions of the owners of ordinary shares, but will also have to sell them under certain conditions at a certain price.

Unfortunately, this method is not perfect either. The problem is that the legislative possibility of concluding shareholder agreements has appeared quite recently. In this regard, there is practically no judicial practice on the issue of limiting the rights (or imposing additional obligations) on owners of preferred shares, and, therefore, it is impossible to predict the possible nuances of enforcement when courts consider claims based on the provisions of shareholder agreements in the future.

We will be especially careful if preferred shares were issued by an open joint stock company

Shareholders of an open joint-stock company must additionally take into account that if, as a result of the described actions, the number of voting shares controlled by them together with affiliates exceeds one of the thresholds of 30, 50, 75%, they will fall under the scope of Chapter. XI.1 of the Law, according to which they will have to carry out complex and expensive procedures related to the direction and implementation of the so-called “mandatory offer” to other shareholders of the company. Until such a proposal is submitted, a shareholder may vote only with a number of shares not exceeding the first threshold passed during such acquisition. Due to the limited scope of this article, the author does not consider it possible to dwell in more detail on the implementation of these procedures, but considers it necessary to note two circumstances.

Firstly, the current practice interprets giving preferred shares voting status as an option for acquiring the block of shares established by the Law. That is, if previously a shareholder, owning 25% of ordinary and 20% of preferred shares, did not have the obligation to send a mandatory offer to the company to buy out all remaining shares, then as soon as the preferred shares he owns become voting, he will have this obligation. This situation applies even to cases where the acquirer himself did not vote for the decision by virtue of which the preferred shares became voting, or even voted against such a decision. Clause 8 art. 84.2 of the Law contains a list of cases of acquisition of shares in which the requirements of Ch. XI.1 do not apply. Our case is not included in this list.

Secondly, these procedures can bring very interesting results in the future. Thus, if, as a result of the implementation of the “mandatory offer” procedures, a shareholder (singly or jointly with affiliates) becomes the owner of more than 95% of the voting shares of the OJSC, while at least 10% of this number will be acquired by him during these procedures, the shareholder has the right at his request, buy back shares from other shareholders, which will provide him with complete control over the company.

What is presented in this article does not exhaust, of course, all the possibilities and all the problems associated with the use of preferred shares in corporate governance procedures. However, the author hopes that the presented material will allow readers to more fully utilize their potential and avoid the most obvious mistakes.

See, for example, Resolution of the Federal Arbitration Court of the North Caucasus District dated January 28, 2005 No. F08-6439/04; Resolution of the Federal Arbitration Court of the East Siberian District dated December 12, 2006 No. A19-11170/06-53-F02-6682/06-S2.

Part two of the Tax Code of the Russian Federation dated 05.08.2000 No. 117-FZ, art. 224, paragraph 4.

Resolution of the Federal Arbitration Court of the Northwestern District dated July 21, 2008 No. A56-19949/2006.

See, for example, Resolution of the Federal Arbitration Court of the East Siberian District dated December 12, 2006 No. A1911170/06-53-F02-6682/06-C2; Resolution of the Federal Arbitration Court of the North Caucasus District dated January 28, 2005 No. F08-6439/04.

Federal Law of June 3, 2009 No. 115-FZ “On Amendments to the Federal Law “On Joint-Stock Companies” and Article 30 of the Federal Law “On the Securities Market” (came into force on June 9, 2009).

Ordinary shares

The owner of an ordinary share has the rights provided by the shares in full (participate in the general meeting of shareholders with the right to vote on all issues within his competence, have the right to receive dividends, and in the event of liquidation of the JSC - the right to receive part of his property in the amount of the value of his property shares).

Conversion of ordinary shares into preferred shares, bonds and other securities is not permitted.

Preferred shares (PA)

The privilege of the owner of the PA is that the charter for each type of PA must define the amount of the dividend and (or) the cost paid upon liquidation of the JSC (liquidation value). They are determined in a fixed amount of money or as a percentage of the par value of preferred shares.

Preferred shares can have several varieties, and there are no legal restrictions on the number of types of PA. In this case, the main thing is that the charter of the joint-stock company clearly defines the rights for each type of PA, and their total number does not exceed 25% of the authorized capital.

Owners of preferred shares for which the dividend amount is not determined have the right to receive dividends on the same basis as owners of ordinary shares.

If the charter of a joint-stock company provides for preferred shares of two or more types, for each of which the amount of dividend is determined, the charter of the joint-stock company must also establish the order of payment of dividends for each of them, and if the charter of the joint-stock company provides for PA of two or more types, for each of which a liquidation amount is determined cost, - the order of payment of the liquidation value for each of them.

In exchange for a privilege (fixed dividend amount and (or) liquidation value), shareholders - owners of preferred shares do not have the right to vote at the general meeting of shareholders, with the exception of making decisions:

• on the reorganization and liquidation of JSC;
• on introducing amendments and additions to the charter of the joint-stock company, limiting the rights of PA owners;
• full or partial non-payment of dividends under a PA with a fixed dividend amount at the annual meeting of shareholders. The right to vote is lost from the moment of the first payment of dividends on these shares in full.

In Russia there are two types of preferred shares:

• 1) cumulative - shares for which the unpaid or incompletely paid dividend, the amount of which is determined by the charter, is accumulated and paid no later than the period determined by the charter. If the charter of the joint-stock company does not establish such a period, preferred shares are not cumulative.
• 2) convertible - shares that can be convertible (exchanged) into ordinary shares or preferred shares of other types at the request of the shareholders - their owners within the period specified by the charter of the joint-stock company. In this case, the charter must define the procedure and conditions for their conversion, including the number, category (type) of shares into which they are converted, etc. Conversion of preferred shares into ordinary shares and preferred shares of other types is allowed only if this is provided for by the company’s charter, as well as during the reorganization of a joint-stock company. Conversion of preferred shares into bonds and other securities, with the exception of shares, is not permitted.

One of the features of issuing shares is that they may pay a dividend. The accrual and payment of dividends is carried out in the manner prescribed by Chapter V of the Law on Joint Stock Companies.

A dividend is a portion of profits paid to shareholders after all other financial obligations are met and reserves are replenished to finance the organization's ongoing operations. Dividends are thus reduced if the organization uses a significant portion of its profits to expand production or worsens its financial performance.

One of the features of the activities of joint-stock companies is that ownership and management of the organization are separated. The company is owned by shareholders, who appoint a board of directors to manage it on their behalf.

Private investors traditionally buy shares for the purpose of long-term investment and therefore, as a rule, agree to a low dividend at the end of the year if they see the prospect of capital growth as a result of the development of the joint-stock company.

Currently, the main shareholders are institutional investors (pension funds, insurance companies, banks, mutual funds and investment companies). The managers of these organizations manage large sums of money on behalf of a large number of individuals who, by participating in mutual funds or pension funds, are indirect investors.

The initial transfer of funds from investors to issuers when issuing shares occurs in the primary market. Since the shares are not redeemed, the organization effectively receives funds for perpetual use. When a company's shares begin selling on a stock exchange, capital is said to be raised in the open or public market, so new issues of this kind are called an Initial Public Offering (IPO). In order to list its shares on the open market, an organization must meet certain financial criteria.

However, the bulk of exchange transactions are not carried out on the market for new issues, i.e. primary market, but in the secondary market, where shares are traded after their initial placement.

Trading on stock exchanges is determined by the demand and supply of equilibrium prices for shares of an individual company, which are influenced by the current and expected financial characteristics of the joint-stock company. The dynamics of the stock market as a whole are determined by many events in the world and national markets, including inflation rates, interest rates, GDP growth, etc.

To solve the problems they face, organizations have to raise funds for various periods. The source of funds can be the organization's profits or proceeds from the issue of short-, medium- and long-term financial instruments, such as bonds.

Bond- an issue-grade security that secures the right of its owner to receive from the issuer a bond within the period specified in it, its nominal value or other property equivalent. A bond may also provide for the right of its owner to receive a fixed percentage of the bond's face value. (coupon) or other property rights. Bond income is interest and (or) discount. The classification of bonds is presented in table. 15.1.

Bonds are issued in the form of a capital loan, and the buyer of the bond acts as the lender. The procedure for issuing corporate bonds is regulated by the Law on Joint Stock Companies.

Table 15.1

Classification of bonds in Russian and international practice

Ending

Organizations must maintain a certain balance between borrowed and equity funds, without exceeding, on the one hand, the permissible level of borrowing, and on the other, avoiding the dissolution of share capital as a result of excessive issuance of shares.

Investors provide their money to those who have a need for capital, with the expectation that the money will be returned along with a reward for its use. The amount of remuneration is closely related to the level of risk in the capital market.

It is believed that investing in shares, i.e. Entering into partial ownership of an organization that may turn out to be unprofitable is riskier than investing in bonds (debt instruments). That is why shareholders expect higher returns, which consist of an increase in the value of shares and dividends paid on them. However, dividends are sometimes less than expected, or even not paid at all; It happens that the price of shares also falls. In a worst-case scenario, when an organization goes bankrupt, the investor may lose his or her original investment entirely.

Investors turn to the debt market in search of stronger guarantees or more predictable payments. They lend to the issuer in the belief that it will not cease to exist before the bond matures and will fulfill its debt obligations. In addition, in the event of liquidation of a joint stock company in accordance with the law, debt obligations must be repaid before settlements with shareholders. In exchange for such guarantees, investors accept lower returns than they would have had with riskier stock investments.

Bank of Russia Regulations No. 428-P dated August 11, 2014 (as amended on December 18, 2018) “On standards for issuing securities, the procedure for state registration of an issue (additional issue) of equity securities, state registration of reports on the results...

Chapter 50. Peculiarities of placement of securities during the reorganization of legal entities

50.1. The decision on reorganization, as well as agreements on merger and accession, if these agreements provide for the consolidation and splitting of shares, may provide for a conversion coefficient (distribution coefficient) of shares, calculated taking into account the results of their consolidation and splitting, which at the time of their adoption (approval) have not yet been implemented. Decisions on splitting and consolidating shares, as well as decisions on reorganization, can be made simultaneously.

50.2. Shares during reorganization can only be converted into shares. In this case, ordinary shares can only be converted into ordinary shares, and preferred shares - into ordinary or preferred shares.

Issuer bonds and options can be converted into issuer bonds and options, respectively. In this case, one bond must be converted into one bond providing the same rights, and one issuer option - into one issuer option providing the same rights.

When converted into convertible bonds and options of the issuer, the number of shares into which they can be converted is determined in accordance with the conversion ratio of the shares.

50.3. The placement of shares of a joint-stock company created as a result of reorganization to shareholders - owners of shares of the same category (type) of one joint-stock company, reorganized in the form of a merger or accession, must be carried out on the same terms.

50.4. Securities of a legal entity created as a result of a merger, division, separation and transformation are considered placed in accordance with the decision on reorganization in the form of a merger, including the merger agreement, the decision on reorganization in the form of division, separation, transformation on the day of state registration of this legal entity. Securities of the legal entity to which the merger was carried out are considered to be placed in accordance with the decision on reorganization in the form of merger, including the merger agreement, on the day of making an entry in the unified state register of legal entities about the termination of the activities of the merged legal entity.

50.5. Shares of a joint stock company being merged or reorganized in the form of a merger, spin-off or division, a demand for redemption of which was presented and which, in accordance with the Federal Law “On Joint-Stock Companies”, were redeemed, but were not sold before the date of entry into the unified state register of legal entities of the termination record activities of the acquired joint-stock company or before the date of state registration of the joint-stock company created as a result of a merger, spin-off or division are not converted during the reorganization and are not taken into account when distributing shares carried out during the spin-off.

50.6. Additional contributions and other payments for securities placed during the reorganization of a legal entity, as well as related to such placement, are not allowed, with the exception of the paid acquisition of shares upon transformation into a joint-stock company of employees (national enterprise).

50.7. The reorganized legal entity is obliged to inform the registrar maintaining the register of owners of securities of this legal entity about the fact of filing documents for state registration of the legal entity created as a result of such reorganization (about making an entry in the unified state register of legal entities about the termination of its activities) on the day submitting documents to the body carrying out state registration of legal entities.

A legal entity created as a result of reorganization (the legal entity to which the merger was carried out) is obliged to inform the registrar maintaining the register of holders of securities of the reorganized legal entity about the fact of its state registration (about making an entry on the termination of the activities of the reorganized legal entity) on the day of entry corresponding entry in the unified state register of legal entities.

50.8. Securities of legal entities reorganized through accession, merger, division, separation and transformation are redeemed upon their conversion.

50.9. The placement of shares during the reorganization, as a result of which the par value of preferred shares of the joint-stock company created as a result of the reorganization (the joint-stock company to which the merger was carried out) exceeds 25 percent of its authorized capital, is prohibited.

50.10. The authorized capital of a joint-stock company created as a result of a reorganization may be greater (less) than the sum of the authorized capitals of joint-stock companies participating in such a reorganization, as well as greater (less) than the authorized capital (share capital, mutual fund, authorized fund) of the legal entity transformed into it .

The amount of the authorized capital of joint-stock companies created as a result of division may be greater (less) than the authorized capital of the joint-stock company reorganized through such division.

50.11. The authorized capital of the joint-stock company created as a result of the spin-off is formed by reducing the authorized capital and (or) at the expense of other own funds (including additional capital, retained earnings and others) of the joint-stock company from which the spin-off was carried out.

The authorized capital of joint stock companies created as a result of a merger or division is formed at the expense of the authorized capital and (or) at the expense of other own funds (including additional capital, retained earnings and others) of the joint stock companies reorganized through such a merger or division.

The amount of increase in the authorized capital of the joint-stock company to which the merger was carried out is formed at the expense of the authorized capital of the merged joint-stock company and (or) at the expense of other own funds (including additional capital, retained earnings and others) of the joint-stock company to which the merger was carried out , and (or) affiliated joint stock company.

The authorized capital of a joint stock company created as a result of transformation is formed at the expense of the authorized (share) capital (share fund, authorized fund) and (or) at the expense of other own funds (including additional capital, retained earnings and others) of the legal entity , reorganized through such a transformation.

50.12. Reorganization of a joint stock company in the form of a merger or accession with the participation of a legal entity of a different organizational legal form is permitted in cases established by federal laws. Reorganization of a joint stock company in the form of spin-off or division, during which a new legal entity of a different organizational legal form is formed, is permitted in cases established by federal laws.