ArticlesPreference shares

We have already addressed the shares of the SA, their operation and value. Also: the rights and obligations arising from them. We have also addressed their distinction into common, nominal and intangible shares, the obligation (or not) to issue equity securities as well as their under/over par issue. In the present article we will address an (on many aspects) interesting class of shares: the preference shares.


Preference shares: Concept and purpose

Preference shares (art. 38 of Law 4548/2018) are those which (in deviation from the principle of equality governing shares – art. 36 §1), provide more property rights and privileges to their owners.

Deposits in banks and investments in banking products are no longer a profitable investment. Safe places (which would justify zero or negative interest rates) do not exist. Different – even more “aggressive” – alternatives have been investigated for a long time. Among them: and participation in the SA’s share capital – through preference shares.

The SA, on the other hand, is able to offer, through the preference shares, the appropriate incentives in order to attract capital. It achieves, in this way, its financing, without the obligation to return capital and (as a rule) interest – as, under normal conditions – in the case of borrowing, it would have to do.


The preference shares and the benefits for the SA

Even if the agreed “consideration” for the holder of preference shares is the interest, there are significant differences from a financing of the same amount in the form of a simple or bond loan. Among them: the payment of interest to the shareholder-holder of preference shares is for the SA an expense (deductible from the income), in contrast to the profits it distributes.

Preference shares expand the SA’s capital base, improve its financial ratios and creditworthiness. The credit risk of the next financier will be (objectively) more reduced: the capital base and financial ratios of the SA will be improved. An inevitable consequence will be the easier sourcing of (new and cheaper) financing – based on the logic of reducing credit risk. The SA will become, for the same reasons, more attractive to potential new investors.


The procedure for issuing preference shares

The issuance of preference shares requires an initial (or consequential) statutory provision. The relevant decision (if it is an amendment to the statutes) is taken by the General Assembly with the usual quorum and majority. However, in the case of the issuance of preference shares through the increase of the SA’s share capital, a relevant decision of the General Assembly is required: it is taken with an increased quorum and majority (art. 130 §§3 and 4 and art. 132 §2). And let’s not forget that the specific decisions (amendment of the articles of association and decision to increase the capital) can coexist in the same General Assembly (art. 4 §5). In case shareholders of preference shares preexist, the approval decision of their assembly must be taken beforehand, and so must their exercise of their right of preference (art. 25 §§3 and 4 and 25 §1).

It is also possible to convert common shares into preference shares – without increasing the share capital of the SA – subject to the principle of equal treatment of shareholders (art. 38 §7). And in this case, however, an increased quorum and majority of the General Assembly that will take the relevant decision is required.


The perks

The partial or total receiving of the distributed dividend before the holders of the common shares.

The preferential contribution to the beneficiaries of the shares from the share capital reduction product or the liquidation product, including their participation in the premium amounts, which may have been paid.

The receiving of a cumulative dividend (and as such we mean the dividends of previous fiscal years which were not paid to the preferred shareholders due to the non-distribution of profits).

The receiving of a fixed dividend or only a partial participation in the company’s profits.

The receiving of interest, either with a parallel provision of the condition of non-participation in the company’s profits for a specific period of time or without a relevant provision.

The right to vote

Preference shares may be issued with (or without) voting rights. In the case of their issuance without the right to vote, they are not counted in the quorum and majority for the decision of the General Assembly. Their nominal value is taken into account, however, regarding the exercise of minority rights. There is no limit to the number of non-voting preference shares that SA can issue. Let’s just remember that it is, in every case, necessary to have at least one common share in the SA (art. 37 §2).

It is also possible to issue preference shares with limited voting rights (only for certain matters specified in the articles of association of AE – art. 37 §4).


The convertible preference shares

Preference shares may be issued as convertible into common or preference shares of another category (art. 38 §3), on the basis of a relevant (initial or consequential) statutory provision. The articles of association must define the terms and deadlines as well as the obligation (or not) of the conversion. The conversion right can be foreseen, for the first time, with the decision of the General Assembly on the issue of the preference shares (art. 38 §3). In the event the relevant decision follows their issuing, an increased quorum and majority is required both from the General Assembly of the holders of common shares and from that of the privileged shareholders (art. 38 §8 paragraphs a and b).


Removal or limitation of privileges

The complete abolition of the privileges of preference shares leads to their conversion into ordinary shares. Their limitation takes place in the event that one of the most privileges is removed or limited as well as when new privileges are issued. In each such case, a decision of the special meeting of the privileged shareholders taken with an increased quorum and majority is required.


The ” Way Out” of the investment

The liquidity of any investment is an important factor for choosing to make it in the first place. And when the acquisition of preference shares is chosen as an investment, it is possible to make it more attractive by simultaneously issuing them as redeemable: as an additional, i.e., “privilege”. In this context, the time and method of liquidation of the investment will be determined in advance, as will, moreover, the total-final benefit of the investor.


Issuance of preference shares is often an extremely interesting option for both the SA and the investor. The first (issuance) attracts investment funds, strengthens the company’s capital base, increases its credit rating, renders it more attractive to prospective investors. Owning preference shares, on the other hand, is an alternative (and often very interesting) investment option. The addition (or not) of voting rights can satisfy individual needs and choices of the persons involved. In fact, in the event that the preference shares are agreed to be redeemable, the scheme can become more attractive, both for existing and new shareholders. But about them, see our article to follow.

Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 3rd, 2022).


Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

Stavros Koumentakis
Nikis Avenue & 1, Morgenthau st., 54622 Thessaloniki
(+30) 2310 27 80 84

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