{"id":28212,"date":"2022-03-17T11:15:00","date_gmt":"2022-03-17T03:15:00","guid":{"rendered":"https:\/\/zegal.com\/preference-shares-investment-agreement\/"},"modified":"2024-12-27T17:41:18","modified_gmt":"2024-12-27T09:41:18","slug":"preference-shares-investment-agreement","status":"publish","type":"page","link":"https:\/\/zegal.com\/en-sg\/preference-shares-investment-agreement\/","title":{"rendered":"Preference Shares Investment Agreement"},"content":{"rendered":"\n

<\/span>What is a Preference Shares Investment Agreement?<\/span><\/h2>\n\n\n\n

\"What<\/p>\n\n\n\n

A Preference Shares Investment Agreement<\/strong> is a contract for an investor to invest in a company and get preference shares in return. Please note: investment by preference shares is highly sophisticated. If you are not familiar with how preference shares work or how this investment agreement operates, you must seek legal advice.<\/p>\n\n\n\n

<\/span>Key terms in Shares Investment Agreement:<\/span><\/h2>\n\n\n\n

<\/span>Reserved Matters List:<\/strong><\/span><\/h3>\n\n\n\n

There are certain matters or actions which must not be undertaken by the company or its subsidiaries without the approval or special majority of the board or shareholders. In the <\/span>case of reserved matters, special approval is required which is more than and above what is required by the general law. Such provisions afford protection to the minority shareholders who generally don\u2019t take part or influence the decisions making process of the company where general approval is required by the law.<\/span><\/p>\n\n\n\n

<\/span>Pre-emptive Rights: <\/strong><\/span><\/h3>\n\n\n\n

Shareholders of a company usually benefit from the pre-emption rights which give them a right to first refusal when new shares are issued by the company. Where the shareholders have pre-emption rights, they have an advantage over other potential investors because new shares are first offered to them. This means that the new shares can\u2019t be offered to others without first being offered to the current shareholders. Whenever new shares are issued by any company, it needs to check whether pre-emptive rights exist or not.<\/span><\/p>\n\n\n\n

<\/span>Liquidation Preference:<\/strong><\/span><\/h3>\n\n\n\n

Basically, liquidation preference relates to what happens to a company in the event of winding up. It tells us that in the case of winding up or a sale event of the company, how the surplus assets of a company should be distributed between its shareholders. During the winding-up scenario, the debt of creditors whether secured or unsecured must be settled first using the surplus assets of the company. This is also known as the waterfall provision due to the fact that the distribution order of the proceeds is clear from top to bottom.<\/span><\/p>\n\n\n\n

<\/span>What are the advantages of a Preference Shares Investment agreement?<\/span><\/h2>\n\n\n\n

Preference shares have a wide range of features as corporate indicate a set of features while issuing them. It is crucial that, at an early stage of the discussion, the parties have a good idea of the rights attached to (or any restrictions that apply to) the preference shares. Major rights that may be attached to preference shares include:<\/p>\n\n\n\n

Allowance for preference shareholders:<\/strong> Preference shares have dividend provisions that are cumulative or non-cumulative. Most of them have cumulative, which means any dividend not paid by the company accumulates.<\/p>\n\n\n\n

Preference shareholders have no right to vote:<\/strong> Preference shares do not normally confer voting rights in the annual general meeting of a company except in special circumstances.<\/p>\n\n\n\n

Par Value:<\/strong> Most preference shares have a par value. When it does, the dividend rights and call price are usually stated in terms of the par value.<\/p>\n\n\n\n

Callable Preference Shares:<\/strong> Normally, preference shares have no maturity date. But callable preference shares may be retired by the issuing company upon the payment of a definite price stated in the investment.<\/p>\n\n\n\n

Preemptive right of preference shareholders:<\/strong> Common law statute gives shareholders, equity or preference, the right to subscribe to additional issues to maintain their proportional share of ownership.<\/p>\n\n\n\n

Participating Preference Shares:<\/strong> Most of the preference shares are non-participating, meaning that the preference shareholders receive only his stated divided and no more.<\/p>\n\n\n\n

Always bear in mind there is not a single set of rights or restrictions that is universal. Each provision is a matter of negotiation; therefore, it is important for you to understand the provisions and to negotiate them with the counterparty where appropriate.<\/p>\n\n\n\n

<\/span>What should be included in the preference share investment agreement?<\/span><\/h2>\n\n\n\n

These are the basic things that are included in a Preference Shares investment agreement.<\/p>\n\n\n\n