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. 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 >>
  2. 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 >>
  3. How do I use a premium put convertible?

    Holders of convertible bonds face all the pitfalls that traditional bondholders face - liquidity risk, interest rate risk ... Read Answer >>
  4. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
  5. What is the difference between Class A shares and other common shares of company's ...

    Discover how a company can break down its common stock into multiple classes and how these classes differ from one another ... Read Answer >>
Related Articles
  1. Financial Advisor

    Is Now the Time for Convertible Bonds?

    Convertible bonds offer a competitive rate of return in what is a very tough market right now. Here's how they work.
  2. Investing

    Why Include Convertible Securities in Your Portfolio

    What are convertible securities and why you should include them in your portfolio.
  3. Investing

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  4. 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).
  5. Investing

    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.
  6. Investing

    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. Investing

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

    LACFX,FACVX,VCVSX: Learn about three of the highest-yielding options available.
  8. Investing

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  9. Investing

    Can a Bond ETF Work in a Rising Rate Environment?

    The CWB Convertible Securities ETF could be the perfect solution for a rising rate environment.
  10. Investing

    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 Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Deferred Equity

    A type of security, such as preferred shares or convertible bonds, ...
  4. Premium Put Convertible

    A convertible bond with an additional put feature that allows ...
  5. Revertible

    Refers to a special kind of convertible corporate bond that automatically ...
  6. Convertible Security

    An investment that can be changed into another form. The most ...
Hot Definitions
  1. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  2. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  3. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
  4. Liability

    Liabilities are defined as a company's legal debts or obligations that arise during the course of business operations.
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
Trading Center