Compulsorily Convertible Preference Shares:
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.
- 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.