A critical facet of a company’s structure revolves around the issuance of diverse financial instruments, each crafted to serve distinct purposes. In this exploration, we will take a high-level dive into the varied instruments outlined under the Companies Act, 2013.
Purpose: Represents ownership with voting rights and dividends based on company profitability.
Significance: Enables companies to raise capital without incurring debt, aligning investor interests with company success.
CCPS (Compulsorily Convertible Preference Shares):
Purpose: Must convert into equity after a specified period or event, blending features of preference and equity shares.
Significance: Offers a hybrid financing option, combining fixed dividends with potential equity conversion.
RPS (Redeemable Preference Shares):
Purpose: Preference shares with a fixed tenure, repurchased by the company after a specific period.
Significance: Facilitates temporary capital raising, providing flexibility in financial planning.
OCRPS (Optional Convertible Redeemable Preference Shares):
Purpose: Provides the option to convert preference shares into equity based on mutual agreement or repayment based on the agreement.
Significance: Offers flexibility for both companies and investors, aligning with performance or mutual preferences.
CCD (Compulsorily Convertible Debentures):
Purpose: Debentures that must convert into equity within a stipulated period.
Significance: A hybrid financing tool, serving as debt until conversion, allowing structured capital raising.
NCD (Non-Convertible Debentures):
Purpose: Offers fixed interest and principal repayment without conversion into equity.
Significance: Serves as a debt instrument, attracting investors seeking fixed returns.
OCD (Optionally Convertible Debentures):
Purpose: Provides the option to convert debentures into equity or repayment based on agreed-upon terms.
Significance: Blends debt financing with flexibility, catering to diverse investor preferences.
Purpose: Options allowing the purchase of company shares at a predetermined price.
Significance: Enhances flexibility for investors, particularly in staged capital infusion scenarios.
Partly Paid-up Shares:
Purpose: Shares for which shareholders have paid only a portion of the nominal value.
Significance: Allows immediate capital infusion with the potential for later calls for unpaid amounts.
Purpose: Gives the right to buy or sell shares at a predetermined price, commonly used in ESOPs.
Significance: Aligns employee incentives with company performance, fostering a sense of ownership.
The intricate realm of financial instruments under the Companies Act, 2013, underscores the need for tailored strategies in capital raising and ownership management. To navigate this complexity effectively, seeking advice from legal advisors is crucial.
Author: Prashant Kumar Jain, Managing Partner
Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at firstname.lastname@example.org