What is Preferred shares?

Preferred shares, also known as preference shares, are a type of equity security that gives shareholders priority over common shareholders in terms of dividend payments and liquidation proceeds. While preferred shareholders do not typically have voting rights, they are entitled to fixed or variable dividends and have a higher claim on the company’s assets if it is liquidated. In Switzerland, preferred shares are commonly used by companies to raise capital while providing investors with a more secure form of equity investment.

Key Features of Preferred Shares

  • Priority Dividends: Preferred shareholders receive dividends before common shareholders. These dividends are typically fixed and may be cumulative, meaning that if the company is unable to pay dividends in a given period, the unpaid dividends accumulate and must be paid in the future before common shareholders receive any dividends.
  • Limited Voting Rights: Generally, preferred shareholders do not have voting rights in the company’s annual general meetings or on matters such as mergers or board elections. However, in some cases, voting rights may be granted under specific conditions, such as if dividends are not paid for a certain period.
  • Liquidation Preference: In the event of liquidation, preferred shareholders have priority over common shareholders when it comes to the distribution of the company’s assets. However, they are subordinate to creditors and bondholders in the payment hierarchy.
  • Convertible or Non-Convertible: Some preferred shares are convertible, meaning shareholders have the option to convert their preferred shares into common shares under certain conditions. This offers the potential for capital appreciation if the company’s common stock price rises.

Preferred Shares in Switzerland

In Switzerland, preferred shares are governed by the Swiss Code of Obligations, which sets out the rules for issuing shares and shareholder rights. Swiss companies may issue preferred shares to attract investors seeking stable income through dividends, while maintaining control over the company’s management structure.

  • Regulatory Compliance: Swiss companies issuing preferred shares must comply with the provisions of the Swiss Code of Obligations, which governs corporate governance, shareholder rights, and financial reporting. The company must also disclose the terms of the preferred shares in its articles of association.
  • Attracting Investment: Preferred shares are often used by Swiss companies to raise capital without diluting the control of common shareholders. They are particularly attractive to institutional investors seeking a stable income stream with less risk than common shares.

Preferred shares offer a blend of equity ownership with enhanced financial security, making them an appealing option for both companies and investors. In Switzerland, these shares provide a flexible way for businesses to raise capital while giving investors priority over common shareholders in certain financial matters.