A:

Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted voting rights.

A convertible bond is a form of debt that features an embedded stock option allowing the convertible bondholder to convert his/her bond into a predetermined number of shares in the issuing company at some future date. There are many different kinds of convertible bonds, each with its own conversion features. Usually, convertible bonds are converted when the convertible bondholder chooses to do so - that is, the bondholder has the right, but not the obligation, to convert the bond on or before a set date. The terms of the bond's indenture detail the specific conversion clauses, such as how many and what kind of shares the bonds convert into.

In most cases, convertible bonds convert to shares of common stock, which usually have voting rights, but not always. Common stock is sometimes divided into different classes; when it's divided into two classes, it's known as dual class stock. Typically, each class will have its own voting rights, and the voting rights of one class will be less effective than the votes of the other class (or classes) when votes are made.

For example, let's say you have convertible bonds of XYZ Computer Corp. that convert to 100 shares of Class A common stock, but it's the Class B common stock that controls 100% of the voting rights for the corporation (in this example). Class A common stock has no voting rights, which means that even after the convertible bonds are converted, you still don't have the right to vote on those issues that must be brought to shareholders for a vote according to the company's charter.

The list of different voting rights assigned to different classes of shares is endless. Another example of voting rights that give unequal voting power to different classes of shareholders are those that award a higher number of votes to shareholders that own one class of shares than to shareholders owning another class.

For more information on convertible bonds, see Convertible Bonds: An Introduction. For more on voting rights, check out The Two Sides of Dual-Class Shares.

RELATED FAQS
  1. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Answer >>
  2. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
  3. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... Read Answer >>
  4. What is a convertible bond?

    A convertible bond is a bond issued by a corporation that, unlike a regular bond, gives the bondholder the option to trade ... Read Answer >>
  5. What are 'death spiral' convertible bonds?

    Conventional convertible bonds give the bondholder the right to exchange the bond for a certain amount of the issuer's common ... Read Answer >>
  6. Why would a corporation issue convertible bonds?

    Discover how corporations issue convertible bonds to take advantage of much lower interest rates as a result of a conversion ... Read Answer >>
Related Articles
  1. ETFs & Mutual Funds

    Why Include Convertible Securities in Your Portfolio

    What are convertible securities and why you should include them in your portfolio.
  2. Managing Wealth

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  3. Financial Advisor

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  4. Managing Wealth

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  5. Managing Wealth

    What You Should Know About Convertible Bonds

    As investors continue to seek yield in the current market, it's now a good time to bring up an often overlooked asset class—the convertible bond.
  6. ETFs & Mutual Funds

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
  7. ETFs & Mutual Funds

    3 Best High-Yielding Convertible Bond Mutual Funds (LACFX, FACVX)

    Discover an often overlooked asset class and how your portfolio can benefit from it, and learn about three of the highest-yielding options available.
  8. Managing Wealth

    The Top 6 Convertible Bond Funds for 2016

    Take a look at convertible bond mutual funds that are well-positioned heading into 2016, and why investors might consider a convertible fund portfolio.
  9. ETFs & Mutual Funds

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  10. ETFs & Mutual Funds

    The Top 3 Convertible Bond ETFs for 2016 (CWB, ICVT)

    Obtain detailed information on the exchange-traded funds (ETFs) available for traders seeking ETF exposure to convertible bond investments.
RELATED TERMS
  1. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  2. Convertible Security

    An investment that can be changed into another form. The most ...
  3. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  4. Revertible

    Refers to a special kind of convertible corporate bond that automatically ...
  5. Deferred Equity

    A type of security, such as preferred shares or convertible bonds, ...
  6. Conversion Price

    The price per share at which a convertible security, such as ...
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center