Including Redemption Rights in my Preferred Stock

stock redemption rights

Including Redemption Rights in my Preferred Stock

In most cases, publicly-traded corporations issue preferred and common stock. Stockholders who are classified as preferred stockholders are entitled to take their stock dividends and may be able to claim assets before any common stockholders are ever ready to do so. Redemption rights are rights that allow preferred shareholders the ability to make the company buy back these stock shares in their possession – might be in the future. For more information about the redemption rights which are available with preferred stock, you should contact the knowledgeable transactional attorneys at Startup Company Counsel today.

The Par Value of Preferred Stock

Individuals who are common stock shareholders may be eligible to receive dividends. These dividends are typically based upon the stock’s market values. However, when it comes to preferred stock, the dividend rate which is available for preferred shares is, under most circumstances, the stock’s par value (i.e., part of the face value of the stock share).

Stock-Redemption Rights

In most cases, investors in a company’s stock ask that they receive redemption rights on their preferred stock. They do this to ensure that they will be able to obtain some quick money from the company which they have invested in – just in case; the stock does not end up performing as well as expected. Corporations that decide to allow for stock redemption rights may have a couple of options about those rights. Those rights include the following:

  • Spreading the redemption payments – On the one hand, the corporation may elect to spread the stock redemption rights over a two or three-yearperiod. This is done to try and dissuade stockholders from redeeming their share of stock in the corporation all at once.
  • Setting the redemption date – On the other hand, the corporation may set the stock redemption for a specific time that extends well into the future

Redemption Rights as a Liability (versus Equity)

In some cases, corporate officers believe that preferred stock shares, which include redemption rights, are a liability, rather than a form of corporate equity. They may find this for a variety of reasons. For example, they may allege that offering redemption rights has a negative impact on their equity shares. Some corporate accountants have also expressed similar concerns in the past. However, it is not always necessary that preferred stock which is redeemable be considered a liability – except in cases where stock redemption is required.

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