Redeemable preference shares (RPS) under Cyprus law facilitate financing in private equity and other corporate transactions.
Cyprus law affords substantial flexibility vis-à-vis the terms of redemption, allowing for:
- redemption at the option of the issuing company
- redemption at the option of the shareholder
- redemption at any time or on the occurrence of a particular event.
RPS can be issued by private companies limited by shares. They are issued at a nominal value but can also carry a premium. RPS must be issued as such from the outset, it is not possible to convert existing equity into RPS. In order to be redeemed, RPS must be fully paid.
The terms attaching the RPS can regulate matters such as, inter alia:
- timing and/or conditions of redemption
- repayment of capital
- participation in surplus assets and profits
- voting rights
- priorities of payment on dividends
Effectively, where RPS are redeemed, they are treated as cancelled. The amount of the company's issued share capital is diminished by the nominal value of the shares redeemed whereas the company's authorised share capital is unaffected by the redemption.
Whenever a company is considering issuing RPS, care must be taken to assess any adverse tax considerations, both in relation to the issuing company as well as the holder of the RPS.
Private equity acquisitions and corporate financing transactions are increasingly relying on RPS issued by Cypriot special purpose vehicles due to their versatility.
Originally published October 17, 2018
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.