Many clients seek to register convertible securities, such as convertible debentures, warrants, options or convertible preferred stock. The question most often asked is how many share need to be registered, and in particular, does the Company need to register the shares underlying the convertible security.
First, it is essential to review a few basic facts on what a convertible security is and how it works.
Convertible Security Defined
A “convertible security” is a security that can be converted into a different security – typically shares of the company’s common stock. In most cases, the holder of the convertible determines whether and when a conversion occurs. In other cases, the company may retain the right to determine when the conversion occurs.
Companies that may be unable to tap conventional sources of funding sometimes offer convertible securities as a way to raise money more quickly. In a conventional convertible security financing, the conversion formula is generally fixed – meaning that the convertible