Compulsorily Convertible Preference Shares (CCPS)

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Insurance regulator IRDAI has rejected Fairfax proposal to convert the company’s holdings in compulsory convertible preferred shares (CCPS) issued by Go Digit Infoworks into equity shares.

About Compulsorily Convertible Preference Shares (CCPS):

  • CCPS, or Compulsorily Convertible Preference Shares, are a key element of startup financing.
  • It gives the assurance of a fixed rate of return plus the opportunity for capital appreciation.
  • These shares carry certain terms—if an early investor has CCPS, he can have more rights than other investors who come in later at a higher valuation.
  • It also helps investors maintain their stake and have a say even if their stake gets diluted later.
  • However, these shares get converted to ordinary equity shares after 10-15 years.
  • That is more than sufficient time for most startups to give their investors an exit.
  • CCPS also helps founders keep control of a company even if their stake is lower than that of investors.

ource : Indian Express