CCPS stands for Compulsorily Convertible Preference Shares.

These are a special type of preference shares that must be converted into equity shares after a fixed period or on a specific event. Unlike optional convertible instruments, here conversion is not a choice — it’s mandatory.

They’re commonly used in startups, private equity deals, and pre-IPO investments.

First, What Are Preference Shares?

Preference shares are shares that:

• Get priority in dividend payment
• Get priority during liquidation
• Usually do not have voting rights (except in specific cases)

Now add “Compulsorily Convertible” to that — and you get CCPS.

How CCPS Works

Here’s the simple structure:

1. Investor invests money in a company.
2. Instead of equity shares, they receive CCPS.
3. After a fixed time (say 3–5 years) or a trigger event (like IPO),
4. These shares automatically convert into equity shares at a pre-decided ratio.

No option. No reversal. Conversion is mandatory.

Why Companies Issue CCPS

Startups and private companies use CCPS because:

• It delays dilution of equity.
• It helps in valuation negotiations.
• It provides structured investor entry.
• It aligns conversion with IPO or funding milestones.

Why Investors Prefer CCPS

Investors like CCPS because:

• They get priority over equity shareholders.
• They often receive a fixed dividend (if declared).
• They have downside protection.
• They convert into equity when company valuation increases.

It’s like getting safety first, growth later.

Key Features of CCPS

• Mandatory conversion into equity

• Fixed conversion ratio or formula
• Priority over equity in dividends
• Priority in case of liquidation
• Usually no voting rights initially

Example of CCPS

Let’s say:

• A startup issues CCPS at ₹100 per share.
• Conversion ratio is 1:2.
• After 3 years, each CCPS converts into 2 equity shares.

If the equity share price becomes ₹300 at IPO:

Investor effectively gains significantly upon conversion.

CCPS vs Equity Shares

Feature	CCPS	Equity Shares
Dividend	Fixed (if declared)	Variable
Voting Rights	Limited	Full
Conversion	Mandatory	Not applicable
Risk Level	Lower initially	Higher
Used In	Private funding	Public markets

CCPS vs CCD (Compulsorily Convertible Debentures)

Many people confuse CCPS with CCD.

Basis	CCPS	CCD
Type	Share	Debt instrument
Interest	Dividend	Fixed interest
Risk	Medium	Lower (before conversion)
Accounting	Equity	Debt until conversion

Advantages of CCPS

• Lower risk for investors compared to pure equity

• Structured entry for private equity and VCs
• Tax and valuation flexibility
• Useful in pre-IPO structuring

Disadvantages of CCPS

• Dilution upon conversion
• No guaranteed dividend
• Complex terms and conditions
• Not easily tradable (in private companies)

Where You’ll Commonly See CCPS

• Startup funding rounds
• Venture capital investments
• Pre-IPO placements
• Strategic investor deals

Rarely used directly in public IPOs for retail investors.

 

Final Thoughts :-

Think of CCPS as a hybrid instrument —Safe like preference shares in the beginning, Growth-oriented like equity after conversion.

 

FAQs

1. Is CCPS debt or equity?

It is a type of preference share (equity instrument), not debt.

2. Can CCPS be traded on stock exchanges?

Generally no, unless listed (rare).

3. Is conversion optional?

No. Conversion is compulsory.

4. Do CCPS holders get voting rights?

Usually no, unless specific conditions apply.

5. Why do startups prefer CCPS?

It provides flexibility in valuation and protects investors.