Explain at least five (5) reasons why a convertible preference shareholder will decide to convert the shares into equity shares.
Explain at least five (5) reasons why a
convertible preference shareholder will decide to convert the shares
into equity shares.
Reasons:
1) If the market of Company's Equity Shares rises above the conversion price, then it is beneficial for Convertible Preference Shareholders to convert in Equity Shares and realize an Immediate Profit through CAPITAL APPRECIATION.
2) Preference Shareholders do not have any voting right in the company. So, when a Convertible Preference shareholder want to participate in decision making then they will convert into Equity Shares.
3) When Equity Shareholders are getting much higher dividends than Preference Shareholders and also there are expectations of growth of company in near future i.e. higher profits and higher dividends then also Convertible Preference Shareholders will convert into Equity Shares in expectation of higher dividends.
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