Article 32
1. Shareholders - owners of preferred shares of the company do not have the right to vote at the general meeting of shareholders, unless otherwise provided by this Federal Law.
(see text in previous edition)
ConsultantPlus: note.
The requirements of paragraph 2 of Art. 32 do not apply to preferred shares of credit institutions acquired in cases established by law.
2. The charter of the company must determine the amount of the dividend and (or) the value paid upon liquidation of the company (liquidation value) on preferred shares of each type. The amount of the dividend and the liquidation value are determined in a fixed amount of money or as a percentage of the par value of preferred shares. The amount of the dividend and the liquidation value of preferred shares are also considered certain if the company's charter establishes the procedure for their determination or the minimum amount of the dividend, including as a percentage of the company's net profit. The amount of the dividend is not considered certain if the charter of the company specifies only its maximum amount. The holders of preferred shares, for which the amount of the dividend is not determined, are entitled to receive dividends on an equal footing and in an equal amount with the holders of ordinary shares.
(see text in previous edition)
If the company's charter provides for preference shares of two or more types, for each of which the amount of dividend is determined, the company's charter must also establish the order in which dividends are paid for each of them, and if the company's charter provides for preference shares of two or more types, for each of which liquidation value, - the order of payment of the liquidation value for each of them.
(see text in previous edition)
The charter of the company may establish that the unpaid or incompletely paid dividend on preference shares of a certain type, the amount of which is determined by the charter, is accumulated and paid no later than the period specified by the charter (cumulative preference shares). If the charter of the company does not establish such a period, preference shares are not cumulative.
(see text in previous edition)
(see text in previous edition)
2.1. The charter of the company may provide for preferred shares of a certain type, dividends on which are paid first of all - before the payment of dividends on preferred shares of any other types and ordinary shares (hereinafter referred to as preferred shares with an advantage in the order in which dividends are received).
The amount of dividend on preference shares with priority in the order in which dividends are received is determined in a fixed amount of money or as a percentage of the par value of such shares. Preferred shares with an advantage in the order in which dividends are received do not have a liquidation value and provide shareholders - their owners with the right to vote at a general meeting of shareholders only on issues specified in this Federal Law. Preferred shares with an advantage in the order in which dividends are received are not taken into account when counting votes and when determining the quorum for making a decision on issues within the competence of the general meeting of shareholders that are not specified in subparagraph 3 of paragraph 1 of Article 48 of this Federal Law, including in cases provided for in paragraphs 4 and of this article, as well as on issues, the decision on which, in accordance with this Federal Law, is taken unanimously by all shareholders of the company.
Change of rights on preferred shares with priority in the order of receiving dividends after the placement of the first such preferred share and reduction of the authorized capital of the company by reducing the par value of such preferred shares are not allowed.
Each shareholder who owns preference shares with preference in the order in which dividends are received in the event of a company reorganization in the form of a merger or takeover must receive in the company created by reorganization in the form of a merger, or in the company to which the merger is carried out, preference shares granting the same rights, as well as preferred shares belonging to him in the reorganized company with an advantage in the order in which dividends are received.
3. The charter of the company may provide for the conversion of preference shares of a certain type into ordinary shares or preference shares of other types at the request of shareholders - their owners or the conversion of all shares of this type within the period specified by the charter of the company. In this case, the charter of the company, prior to the state registration of the issue of convertible preferred shares, must determine the procedure for their conversion, including the number, category (type) of shares into which they are converted, and other conditions for the conversion. It is not allowed to change the said provisions of the company's charter after the placement of the first convertible preferred share of the corresponding issue.
(see text in previous edition)
The conversion of preferred shares into bonds and other securities, with the exception of shares, and the conversion of preferred shares with priority in the order of receiving dividends into ordinary shares and other types of preferred shares are not allowed. The conversion of preference shares into ordinary shares and preference shares of other types is allowed only if it is provided for by the charter of the company, as well as when the company is reorganized in accordance with this Federal Law.
(see text in previous edition)
Shareholders - owners of preference shares participate in the general meeting of shareholders with the right to vote when deciding on issues of reorganization and liquidation of the company, issues provided for in paragraph 3 of Article 7.2 and Article 92.1 of this Federal Law, as well as issues on which decisions are made in accordance with this Federal Law unanimously by all shareholders of the company.
(see text in previous edition)
Shareholders - owners of preferred shares of a certain type acquire the right to vote when deciding at a general meeting of shareholders on the introduction of amendments and additions to the charter of the company that restrict the rights of shareholders - owners of preferred shares of this type, including cases of determining or increasing the amount of dividends and (or) determining or increasing liquidation value paid on preferred shares of the previous order, providing shareholders - holders of preferred shares of a different type of advantages in the order of dividend payment and (or) the liquidation value of shares, or introducing provisions on announced preferred shares of this or another type, the placement of which may lead to an actual decrease the amount of dividend and (or) liquidation value determined by the charter of the company, paid on preferred shares of this type. The decision to introduce such amendments and additions shall be considered adopted if at least three-quarters of the votes of shareholders - owners of voting shares participating in the general meeting of shareholders, except for the votes of shareholders - owners of preferred shares, the rights to which are limited, and three-quarters votes of all shareholders - owners of preferred shares of each type, the rights to which are limited, unless a larger number of votes of shareholders is established for such a decision by the charter of the company.
(see text in previous edition)
Shareholders - owners of preferred shares of a certain type acquire the right to vote when deciding at the general meeting of shareholders on the issue of filing an application for listing or delisting of preferred shares of this type. The said decision shall be considered adopted provided that at least three-quarters of the votes of shareholders - owners of voting shares participating in the general meeting of shareholders, except for the votes of shareholders - owners of preference shares of this type, and three-quarters of the votes of all shareholders - owners of preference shares are cast in favor of it. shares of this type, unless the charter of the company establishes a greater number of votes of shareholders for the adoption of the said decision.
(see text in previous edition)
Shareholders - owners of preferred shares of a certain type, the amount of the dividend for which is determined in the charter of the company, with the exception of shareholders - owners of cumulative preferred shares, have the right to participate in the general meeting of shareholders with the right to vote on all issues of its competence, starting from the meeting following the annual general meeting of shareholders, at which, regardless of the reasons, a decision was not made to pay dividends or a decision was made to pay incomplete dividends on preferred shares of this type. The right of shareholders - owners of preference shares of this type to participate in the general meeting of shareholders shall be terminated from the moment of the first payment of dividends on the said shares in full.
(see text in previous edition)6. The charter of a non-public company may provide for one or more types of preferred shares, granting, in addition to or instead of the rights provided for in this article, the right to vote on all or some issues within the competence of the general meeting of shareholders, including in the event of the occurrence or termination of certain circumstances (commitment or failure to by the company or its shareholders of certain actions, the occurrence of a certain period, the adoption or non-adoption of certain decisions by the general meeting of shareholders or other bodies of the company within a certain period, the alienation of shares of the company to third parties in violation of the provisions of the company's charter on the pre-emptive right to acquire them or on obtaining the consent of the company's shareholders to their alienation and other circumstances), the preemptive right to acquire shares of certain categories (types) placed by the company, and other additional rights. Regulations on preferred shares with the said rights may be provided for by the charter of a non-public company upon its establishment, or included in the charter or excluded from it by a decision adopted by the general meeting of shareholders unanimously by all shareholders of the company. The specified provisions of the charter of a non-public company may be changed by a decision taken by the general meeting of shareholders unanimously by all shareholders - owners of such preferred shares and by a three-quarters majority vote of shareholders - owners of other voting shares participating in the general meeting of shareholders.
A share is an issuance security that secures the rights of its owner (shareholder) to receive part of the JSC's profit in the form of dividends, to participate in the management of the JSC and to part of the property remaining after its liquidation (Article 2 of the Federal Law of April 22, 1996 N 39-FZ " About the securities market).
Distinguish between ordinary and preferred shares, distributed by open or closed subscription. The owners of ordinary shares of the company can participate in the general meeting of shareholders (hereinafter referred to as the GMS), have the right to vote on all issues of its competence and the right to receive dividends, and in the event of liquidation of the joint-stock company they have the right to receive part of the property (Article 31 of the Federal Law of December 26, 1995 year N 208-FZ). Each ordinary share gives its owner the same amount of rights and is not subject to conversion into preferred shares and other securities.
JSCs may issue several types of preference shares, and the charter of the company must determine the amount of the dividend and/or the value paid upon liquidation of the company (liquidation value) on preference shares of each type. The order of payment of dividends and the liquidation value of each type of preferred shares are determined.
There are cumulative and convertible shares. On preferred cumulative shares, the unpaid or not fully paid dividend is accumulated and paid no later than the period specified by the charter of the JSC.
The charter of the company may provide for the conversion of preference shares of a certain type into ordinary shares or preference shares of other types at the request of shareholders - their owners or the conversion of all shares of this type within the period specified by the charter of the company. The conversion of preference shares into bonds and other securities, with the exception of shares, is not allowed. The conversion of preference shares into ordinary shares and preference shares of other types is allowed only if it is provided for by the charter of the company, as well as during the reorganization of the company.
Shareholders - owners of preference shares of a certain type, the amount of dividend for which is determined in the company's charter, with the exception of shareholders - owners of preference cumulative shares, have the right to participate in the GMS with the right to vote on all issues of its competence, starting from the meeting following the annual GMS, at in which, regardless of the reasons, a decision was not made to pay dividends or a decision was made to pay incomplete dividends on preferred shares of this type. The right of shareholders - owners of preference shares of this type to participate in the GMS shall terminate from the moment of the first payment of dividends on the said shares in full.
Shareholders - owners of cumulative preference shares of a certain type have the right to participate in the GMS with the right to vote on all issues within its competence, starting from the meeting following the annual GMS, at which a decision was to be made on the payment of these shares in full amount of accumulated dividends, if such a decision was not made or a decision was made to pay incomplete dividends. The right of shareholders - owners of cumulative preference shares of a certain type to participate in the AGM shall terminate from the moment of payment of all dividends accumulated on the specified shares in full.
Often, organizations in the course of their financial and economic activities invest free cash in securities (including shares) of other enterprises. This type of investment refers to financial investments (clause 3 of the Accounting Regulation "Accounting for financial investments" PBU 19/02, approved by Order of the Ministry of Finance of the Russian Federation of December 10, 2003 N 126n).
Types of services from AAA-Investments LLC
- Registration of companies (PJSC/JSC)
- Registration of changes
- Changes in the Criminal Code
- Changes in the types of activities of the company (OKVED)
- Bringing the charter of a CJSC into line with Federal Law No. 312-FZ
- Change of name, legal address
- Liquidation and reorganization
- Other services
- Entry into the register of small businesses in Moscow
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Certain preference shares may be converted into the issuer's ordinary shares. This feature gives the holder the right to convert a portion of the preferred shares into a predetermined number of the issuer's ordinary shares. Convertible preferred shares are preferred shares with an embedded call option on common shares. However, most preferred stock issues are also callable, effectively allowing the issuer to force preferred stock holders to either convert their preferred stock into common stock or sell them in exchange for cash.
In order to understand what is happening with callable preferred shares, we need to explain some terms. First, it is the conversion value of preferred shares; it is equal to the number of ordinary shares into which one preferred share can be converted, multiplied by the current value of one ordinary share. Secondly, this
the actual price of the call, equal to the sum of the par price of the call in effect at the time of the call, plus any accrued dividends.
Obviously, when deciding whether to convert or sell shares, the investor will be guided by considerations of his own benefit. If the actual 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 usually call preference shares when they are in-the-money (and therefore the conversion cost exceeds the call price). Thus, calling a preferred share in the money is called a "forced call."
As an example of a callable and convertible preferred stock, consider a preferred stock issued by Western Gas Resources with an annual cash dividend of $2.6250 per share, paying
which are produced quarterly. Example 12-7 shows the Bloomberg screen for this issue's preferred securities. Each of these preferred shares may at any time until December 31, 2049 be converted into 1.2579 shares of common stock. Preferred shares were subject to call at a price of $50.79. Parity price is the conversion value equal to the market price of the common stock ($30.61) times 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 pay a premium when they buy common stock by converting preferred stock because the conversion property is an embedded call option on common stock that is convertible only when it is in the investor's interest. The downside risk to the investor is limited to the direct value of the preferred shares (ie the value of the convertible preferred shares without a conversion option).
Convertible preferred shares with special properties
In the mid 1990s. there has been a surge of innovation in the sector of convertible preferred shares with special properties. Next, we will consider their main types.
Preferred securities of trusts
Trust Company Preferred Securities (TOPrS) are also convertible preferred shares. They differ from the convertible shares described above in that for tax purposes, dividends on them may be tax deductible; at the same time, they have a fairly high rating from rating agencies. The principal issuer forms a Delaware business trust to issue securities - the securities are guaranteed by the principal issuer. In the case of TOPrS, there is no tax exemption of 70% of dividend payments from income tax, and the issuer can defer the payment of dividends for up to 20 quarters (5 years). However, if there is a grace period for the payment of dividends, the main issuer cannot pay dividends to holders of ordinary or preferred shares, so TOPrS dividends are accrued and increased quarterly. TOPrS are usually revocable starting three to five years from the date of issue and are redeemable after 20 to 30 years. Due to the nature 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 opportunities to realize the upside potential of common stock through conversion at
- 295 - preferred shares. Salomon Smith Barney's Dividend Enhanced Convertible Stocks (DECS) and Merrill Lynch's Preferred Redeemable Increased Dividends Equity Securities (PRIDES) are two prime 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 correct for the decline in value when the price of the respective common shares rises, thereby limiting their upside potential.
Another similar type of convertible preferred stock is Merrill Lynch's Preferred Equity Redemption Cumulative Stock (PERCS). PERCS also offer high dividend yields 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 poses a risk of losing money, but avoiding stocks altogether means there is no way to make a good profit. However, there is one security that can help solve this dilemma for some investors: convertible preferred shares provide the assurance of a fixed rate of return plus the opportunity for capital appreciation. Here we 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 fixed income corporate securities that an investor can choose to turn into a certain number of shares of the company's common stock after a given period of time or on a specific date. The fixed income component provides a steady income stream and some investor capital protection. However, the possibility of converting these securities into shares allows the investor to benefit from the growth in the share price.
Convertibles are especially attractive to those investors who want to participate in the growth of companies with high growth rates, insulated from a price decline if the stock does not live up to expectations.
Opportunities for the investor
To demonstrate how convertible preferred shares work and how shares benefit investors, let's look at an example. Let's say Acme Semiconductor issues 1 million convertible preferred shares at $100 per share. These convertible preferred shares (because they are fixed income securities) give holders priority over ordinary shareholders in two ways. First, convertible preferred shareholders receive a 4.5% dividend (assuming Acme's earnings remain sufficient) before any dividends are paid to ordinary shareholders. Second, convertible preferred shareholders will be ahead of ordinary shareholders in returning capital if Acme ever goes bankrupt and its assets are to be sold off. At the same time, convertible preferred shareholders, unlike ordinary shareholders, rarely have the right to vote.
By buying Acme Preferred Stock with Convertible Preferred Stock, the worst investors will ever receive a $4.50 annual dividend for every share they own. But these securities offer holders the opportunity for even higher returns: if convertible preferred shareholders see Acme stock rise, they may have the opportunity to profit from that rise by turning their fixed-income investments into equity. On the date of the reset, Acme convertible preferred stock shareholders have the option to convert some or all of their preferred stock into common stock.
Determining Conversion Profit
The conversion rate is the number of shares of common stock that shareholders can receive for each convertible preferred share. The conversion rate is set by management prior to issuance, usually with the management of the investment bank. For Acme, let's say the conversion rate is 6.5, which allows investors to trade preferred stock for 6.5 Acme shares.
The conversion rate indicates what price the common stock needs to trade in order for the preferred stock shareholder to earn on the conversion. This price, known as the conversion price, is equal to the purchase price of the preferred share divided by the conversion rate. So for Acme, the market conversion price is $15.38 ($100/6.5).
In other words, Acme common stock should be trading above $15. 38 for investors to gain from the conversion. If the stock converts and goes below $15. 38, investors will suffer a loss of capital on their investment of $100 per share. If the common stock ends at $10, for example, then the convertible preferred shareholders will only receive $65 ($10) of common stock in exchange for their $100 preferred stock. ($100 is the parity value of the preferred shares.)
Conversion premium
Convertible preferred shares can be traded on the secondary market, and the market price and behavior is determined by the conversion premium, the difference between the parity value and the value of the preferred shares if the shares have been converted. As shown above, the value of a converted preferred share is equal to the market price of common shares multiplied by the conversion factor. Let's say Acme's shares are currently trading at $12, meaning the preferred shares are worth $78 (12 x 65). As you can see, this is well below 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 the market price of the conversion will match the total value of the shares up and down. Higher grade convertibles act more like bonds, as there is less chance of a profitable conversion. This means that interest rates can also affect the value 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 securities like shares when the price of common shares moves above the conversion price. If the share price falls below the conversion price, the convertible trades exactly like a bond, effectively placing a price floor under the investment.
