In the term sheet of CCPS, the company agrees to issue advisory equity equivalent to the investment per cent in value in consideration of the advisory services on an ongoing basis. The type of preference Shares which are compulsorily supposed to be converted in Equity Shares at the time of Maturity of the term of Preference Shares are called as Compulsorily convertible preference shares. This article is written by Abhishek Dubey, a law student. At the strategic sale of equity share means at the price acceptable to the investor within 6 years from the date of closing. But in the term sheet of CCPS, if the investor does not have representation for the board of directors then the board observer position may be granted to the investor. And any disputes will be settled in the court. In term sheet of equity, there is pre-money valuation is required in INR, in term sheet of CCPS the pre-money valuation is required but it is not required in CCD term sheet.

The following are some of the difference … The pre-money valuation is required in case of the equity term sheet. Let us discuss in detail the characteristics of CCPSs. The investor shall be granted all rights that are granted to all the investors subscribing to the securities of the company. It shall be done in such a way that 25 percent of the amount proposed to be raised. This term sheet shall be governed according to the law of India. In CCD, the company agrees to issue equity shares at the time of closing to an advisor. Keep sharing such useful information.

In CCPS term sheet, the holders of the preference share shall be entitled to the payment at certain percentage on non-cumulative coupon per annum on each of preference share by way of dividend from the company. Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content. Difference between Equity & Preference Shares. The investor shall be granted all the rights subscribing to the securities of the company. There is governing law which says that it shall be governed by the law of India and dispute will be settled in the court but there is arbitration in CCPS where the party can appoint the arbitrator but in equity it and CCD the dispute will be settled in the court. Comparison between Equity Shares and Preference Shares, Click here for a webinar on the various debt funding instruments (CCDs, CCPS, etc.) Investors shall be entitled to nominate only one director, others shall be nominated by the promoters. And any dispute will be settled in the court. Form PAS-3 shall be filed within 30  days from the date of issuance of shares. This is given only in the term sheet of CCD but not in the term sheet of equity and CCPS. Under the CCD term sheet, certain rights are agreed by the parties in the documents called debenture definitive documentation. Not required (if the company has sufficient authorized capital), Required (authorized capital should be reclassified and increased to the extent of the proposed issue). Under the equity term sheet, equity share has a face value of INR at the price of per-share equity share.

The selling investor has to first offer it to the promoters. Promoters and non-selling rights of the first offer. Equity shares basically represent a part-ownership where each shareholder becomes a fractional owner of the issuing company. Every member of a company limited by shares and holding any preference share capital shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital. And in CCPS(Compulsary Convertible preference Share)  term sheet, companies have a face value of INR at each price of share along with certain rights as agreed by the parties in the documentation of preference and subscription share. There is no conversion in equity term sheets. In terms of equity, there are various ways to provide the exit opportunity such as initial public offering at a time mutually agreed upon, within 5 years from the date of closing. Governing law jurisdiction and arbitration. The preferential rights can vary from priority on payment of dividends and liquidation preference to anti-dilution provisions.

In the case of CCPS term sheet, after 20 years and after liquidation, the preference share shall convert into equity share in the ratio1:1. The exit mechanism provides that the company and promoters shall make all ways to provide the exit opportunity to the investor. Board composition and incidental matter clause, Promoters and non-selling investors right of the first offer, Governing law, jurisdiction and arbitration, Weekly Competition – Week 4 – September 2019, Weekly Competition – Week 2 – October 2019, Weekly Competition – Week 3 – October 2019, Weekly Competition – Week 4 – October 2019, Weekly Competition – Week 1 – November 2019, Weekly Competition – Week 2 – November 2019, Weekly Competition – Week 3 – November 2019, Weekly Competition – Week 4 – November 2019, Weekly Competition – Week 1 – December 2019, Legal Framework for the protection of Child Rights in India, Judicial Separation under Hindu Marriage Act, 1955, Transfer of property for benefit of an unborn person and Rule against perpetuity : comparative study of Muslim Law and Transfer of Property Act, Benefaction of Indian Judiciary in environmental jurisprudence, The plight of manual scavengers in India : a legal perspective. The investor before selling the share to the third party has to offer it to the promoters. In the CCPS, the rights of the parties are governed in the documentation called preference share and equity and preference share have face value collectively known as subscription share.
But in the term sheet of CCD, there is a conversion clause which says that if the company raises the qualified financing then debenture will be automatically converted into equity share. In the term sheet of CCD, the company at the time of closing agrees is to issue equity shares. Understand the difference between preference and equity shares. In terms of CCD also, there are various ways to give the exit opportunity to the investor such as IPO, strategic sale of debenture and drag along with options etc. What are Compulsory Convertible Debentures or CCD? But no such valuation is required in case of CCD term sheet. There is no conversion clause in the term sheet of equity. In the term sheet of CCD, the debenture shall bear an interest of % on a non-cumulative basis per annum. Equity Shares are the shares that carry voting rights and the rate of dividend also fluctuate every year as it depends on the amount of profit available to the company. No separate bank account is required in case of rights issue of equity shares. The company shall implement the employee stock option plan not exceeding than the post-issue share of the capital on fully diluted basis along with the consent of the director and promoters. And in CCD(Compulsory Convertible Debenture) term sheet, the total value of INR and certain rights are attached in the debenture documentation. This voting right shall be in proportion to the shareholder’s share in paid-up preference share capital. Under the equity term sheet,  equity share has a face value of INR at the price of equity share. There are various ways to provide the exit opportunity to the investor such as Initial public offering, strategic sale of equity share and drag along option. As per Section 43 of the Companies Act (2013), the share capital of a company can be of two kinds, namely, equity share capital and preference share capital, or as we say, preference and equity shares.

Not required in case of private placement of equity shares. #LetsTalkESOP | Employees and Equity Generation. On the other hand, Preference Shares are the shares that do not carry voting rights in the company as … The investor without giving offer to the promoter can sell the share to the third party. Pre emptive rights clauses are not specified in case of CCD term sheet. There are various ways to provide the exit opportunity such as initial public offering, sale of subscription share and drag along with options. The terms "redeemable shares" and "convertible shares" refer to different types of preferred stock. Qualified financing refers to the investment lower than the INR. Preference shares are a class of share which give the shareholder specified preferential rights as defined within a company’s articles of association. The conversion shall be adjusted in future according to bonus, employee stock option plan and equity splits etc. However, there is no minimum condition in the term sheet of equity and CCD.