ETASSUM43180 - Schedule 4 Company Share Option Plan (CSOP): Shares to be used: Convertible preference shares

Convertible preference shares can cause particular difficulty and their rights must be considered by the scheme organiser. If there are no rights to share in profits (other than at a fixed rate) attached to the preference shares themselves, and the only rights are attached to the class of shares into which the preference shares are convertible, it is unlikely that the preference shares will be considered ordinary share capital.

The Section 989 definition of ordinary share capital looks for a right to share in profits, not to profits actually being available in accordance with that right. In considering convertible preference shares there is a distinction between:

• shares that merely confer a right to convert, and
• shares that confer a right to share in profits arising from conversion.