A brief note on CN, CCD and CCPS (2024)

FAQs

What is CCD and CCPs? ›

CCPS is a type of preference share, whereas CCDS is a type of debenture. Convertibility: The second difference between CCPS and CCDS is the convertibility. CCPS is convertible, which means that it can be converted into equity shares after a specific period.

Compulsorily Convertible Preference Shares (“CCPS”) is a form of hybrid financial instruments, which are initially preference shares that, under the provisions of a mutually agreed-upon time period, convert into equity shares of the company. CCPS gives the holders precedence over equity shareholders in two ways.

What are the key differences between convertible notes and CCPS? Convertible notes are debt instruments that pay interest and can be converted into equity shares, while CCPS are preference shares that pay dividends and must be converted into equity shares at a predetermined conversion ratio.

A compulsory convertible debenture (CCD) is a type of bond which must be converted into stock by a specified date. It is classified as a hybrid security, as it is neither purely a bond nor purely a stock.

A charge-coupled device (CCD) is a light-sensitive integrated circuit that captures images by converting photons to electrons. A CCD sensor breaks the image elements into pixels. Each pixel is converted into an electrical charge whose intensity is related to the intensity of light captured by that pixel.

Meaning: Compulsory Convertible Preference Shares (CCPS) in India are a type of hybrid security that combines features of both debt and equity. It is the most favorable means for investors and most commonly used in the early stage of any start-up.

Central counterparty clearing houses (CCPs) perform two primary functions as the intermediary in a transaction: clearing and settlement. As counterparties to the buyers and the sellers, CCPs guarantee the terms of a trade—even if one party defaults on the agreement.

6. Regulatory Framework for issue of CCPS: The issue of CCPS securities is a strategic decision of the company and plays a very vital role while controlling the equity stake of the founders of the Company. Slight irregularity can impact substantially on the holding structure of founders as well as Investors.

What is CCPS, a commonly used startup term? CCPS, or Compulsorily Convertible Preference Shares, are a key element of startup financing. These shares carry certain terms—if an early investor has CCPS, he can have more rights than other investors who come in later at a higher valuation.

If issuing to foreign investors then Convertible notes should be preferred. If issuing to domestic investors then CCD is the only option. The convertible notes are convertible in equity at the option of buyer. These are compulsorily convertible in Equity Shares.

Why would you do a convertible note? ›

A convertible note is a debt instrument often used by angel or seed investors looking to fund an early-stage startup that has not been valued explicitly. After more information becomes available to establish a reasonable value for the company, convertible note investors can convert the note into equity.

In general, SAFE agreements are considered more founder-friendly because they provide more flexibility and don't carry interest. Convertible notes tend to be more investor-friendly because the maturity date imposes more restrictions on founders.

Like CCD, Compulsorily Convertible Preference Shares (CCPS) is also a form of preferred stock, that can be converted to a set number of equity shares at a later date, the conversion rate, valuation, date and all conditions will be agreed upon before hand between the start-up and the investor in the offering documents.

This initial divergence surfaced from the framework of guidelines under the Foreign Exchange Management Act, 1999 (FEMA), which deemed CCDs as equity. However, in the realm of tax jurisprudence, CCDs have been treated as debt until the point of conversion.

Applying this test, the Supreme Court observed that CCDs must be converted into equity shares upon maturity and therefore, the possibility of repayment of the principal amount does not arise. Consequently, the Supreme Court held that CCDs would be treated as equity and not debt.

Central counterparty clearing houses (CCPs) play an important role in efficiently reallocating counterparty credit risks and liquidity risks in financial markets.

CCDs, as the name suggests, are debt instruments which are to be compulsorily converted into equity after a certain period. That is, CCDs are hybrid instruments, being debt at the time of issue along with a certainty to get converted into equity.

Debentures are debt instruments. However, varieties of debentures also have some equity features. Broadly, the popular debenture instruments used by FPIs are of three kinds: Non-convertible debentures (NCD), Compulsorily Convertible Debentures (CCDs), and Optionally Convertible Debentures (OCD).