Although shares can be subdivided into ordinary and preference shares, their disparities are also well known. Preference shares on it part can have several clauses. It might be participating or cumulative and much more. This article looks at irredeemable stocks.
Definition of irredeemable preference shares
It can be defined as a type of preference shares in which the holders are not entitled to a callable option on their shares.
It can also be defined as shares that cannot be redeemed or buyback unless when the company liquidates.
From the foregoing, redeemable preference shares have similar explanations with other types of preference stock. In this case, the board of directors cannot redeem it. The holders have to wait till when the company is liquidated.
Unless, if the aim of establishing the business is to liquidate it after achieving the purpose, redeemable preferred shares may not be a good investment. However just like every other type of shares in the category, these shares had the following features.
Non-voting right: Holders don’t have the right to vote at the company’s annual general meeting. Voting becomes necessary when a decision must be made at the meeting.
Fixed dividend: The shareholders received a fixed dividend. If a shareholder dividend is 20,000 Naira that’s the income he will receive on the share forever. Unless he or she buys more of it.
No callable right: The stock remains in the company’s coffers. There Is no right to buyback or call back the shares by the board of directors. This also implies that irredeemable shares remain part owner of the entity for life or till death or closure of the corporation.
Priority on winding up. When the private equity firm liquidates, holders of the stock will receive repayment of their shares including any accrued interest income before ordinary shares.
Irredeemable preference shares receive a fixed dividend based on the number of shares bought. There is no callable option for this type of preferred stock. In addition, holders will have to wait until the company is liquidated. This is when the shares can be sold. Only then, the holders can receive their investment before ordinary shareholders.