Redeemable Preference Shares

Redeemable Preference Shares

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I have a client company with a potential outside investor.  The investor wants to be "part of the company" and he'd like to participate.

The current owner would like to at least have the opportunity to buy him out if things go bad.

He's suggested Redeemable Preference shares, which fit the bill in some ways.  The investor knows what return he's getting - subject to profitability - and the current owner can buy him out - maybe at par, maybe at a premium.

Apart from the legal fees in setting this up, any thoughts/comments/pitfalls/warnings ?

I've no experience of these at all - I thought they just happened in exams.

Replies (3)

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By johngroganjga
15th Dec 2014 17:28

If they meet the investor's objectives (many would want a more invigorating slice of the action if they are lending unsecured to a private company) then why not? 

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RLI
By lionofludesch
15th Dec 2014 18:00

Indeed


Why not indeed, John ?

If no-one comes up with an answer to that, it may well happen.

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By TerryD
16th Dec 2014 11:30

If he's happy with just fixed dividend redeemable prefs, then, yes, why not indeed. But if he wants to have an option to convert to ordinaries (investors often like this option so they can get a bigger slice of the action if the business takes off), more thought will be required.

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