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CCPPO (Cumulative, Convertible, Participating, Preferred-dividend Ordinary) shares are a rare type of equity shares issued by a company, which contain multiple features, including cumulative dividends, participation, convertibility into common shares, and a preferred-dividend feature.
Understanding CCPPO Shares
Essentially, CCPPO shares represent a combination of common and preferred shares. In the event of bankruptcy, holders of CCPPO shares can make a priority claim on a company’s assets over common shareholders, but the shares are junior relative to preferred shares. Similarly, CCPPO holders are entitled to a priority claim on the company’s dividends relative to the common shareholders.
CCPPO shares are a relatively rare type of equity securities. The shares are primarily issued by startups that are looking for initial financing or by companies that undergo turbulent times. CCPPO shares are attractive to potential investors since they include the features of preferred shares (preferred and cumulative dividends, convertibility into common shares while carrying voting rights). The combined features provide tighter control over a company (through voting rights) to the holders of CCPPO shares while the investment risk is reduced (due to the preferred claim on dividends).
Private equity firms and venture capitalists are the parties that are typically interested in obtaining CCPPO shares from companies.
Features of CCPPO Shares
The key distinction of CCPPO shares from other types of equity is that the shares contain a number of different features, including the following:
1. Cumulative dividend feature
If a company misses some of its dividend payments to shareholders due to some reason, the cumulative provision requires a company to settle all missed dividend payments to the shareholders whose shares include the provision. The cumulative dividend feature ensures that the holders of CCPPO shares will receive all the dividend payments that they are entitled to.
The convertibility provision provides a right to a shareholder to exchange his/her preferred shares for common shares at a predetermined exchange rate.
The participation feature provides the holders of CCPPO shares an opportunity to receive dividend payments above the normally specified dividend rate. Unlike the holders of non-participating shares who are subject to a restriction on earnings distributed through dividends, the holders of participating shares can potentially receive earnings above their fixed rate.
Participating shares also grant liquidation preferences to their holders over common shareholders in case of a company’s liquidation. Essentially, if a company is liquidated, the participating shareholders are entitled to receive back the purchase price of their shares, as well as any leftover value that would remain after the liquidation of a company as if the shares were common shares.
4. Preferred-dividend feature
Note that CCPPO shares are ordinary, not preferred shares. Since ordinary shares do not offer preferred dividends, such a feature is specified for CCPPO shares. The preferred-dividend provision determines a fixed dividend rate based on the stock’s par value at which dividend payments are paid. Note that the preferred dividends are generally higher than the dividends for the common shares.
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