Do convertible bonds have voting rights?

By Rob Renaud AAA
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. Can I still set up an SEP if one of my employees refuses to participate?

    You can establish the SEP IRA, even if the employee refuses to participant. However, you would need to establish an IRA for ...
  2. I get multiple mailings to my house from companies that my spouse, children and I ...

    It's not uncommon for there to be more than one investment account holder in one household. If multiple members of your household ...
  3. I have a small business, and I'm considering setting up an SEP IRA. What are leased ...

    Generally, a leased employee is the employee of an outside organization from which you lease the employee's services. For ...
  4. If a company undergoes an acquisition can an employee withdraw 401(k) funds tax free?

    Although the participant may be eligible to withdraw the funds if a plan is terminated as a result of an acquisition or other ...
RELATED TERMS
  1. Entitlement Offer

    An offer to purchase a security or other asset that cannot be ...
  2. Class 3-6 Bonds

    Several classes of noninvestment grade bonds held by an insurance ...
  3. Strategic Management

    The management of an organization’s resources in order to achieve ...
  4. Performance Management

    The management of employees, departments, and organizations to ...
  5. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  6. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...
comments powered by Disqus
Related Articles
  1. Examples Of Using SWOT Analysis To Get ...
    Investing Basics

    Examples Of Using SWOT Analysis To Get ...

  2. Understanding The Bond Behemoth That ...
    Mutual Funds & ETFs

    Understanding The Bond Behemoth That ...

  3. Fund Firm Jolts: Pimco's Isn't The First ...
    Investing News

    Fund Firm Jolts: Pimco's Isn't The First ...

  4. Alternatives To Pimco's Total Return ...
    Bonds & Fixed Income

    Alternatives To Pimco's Total Return ...

  5. What To Expect From Pimco After Bill ...
    Investing News

    What To Expect From Pimco After Bill ...

Trading Center