Technical Briefing: Preferred Shares: equity or a liability?
Originally published: 07/11/2017 15:23
Last version published: 07/11/2017 15:51
Publication number: ELQ-40702-2
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Technical Briefing: Preferred Shares: equity or a liability?

To help you understand the implications of accounting standards on the classification of preferred shares.

In the United Kingdom, VC funds' portfolio companies can issue preferred shares to the funds or as an enticement to management so some shareholders are able to obtain a return for performance, or if an event doesn't take place, before the portfolio company's other shareholders.

Financial instruments are required so that accounting standards are able to be classed as equity or liabilities. This paper will give you a deeper understanding into this.

Examples are outlined so that when firms are drafting share agreements they can consider including in financial statements things that might help users understand the terms associated with preferred shares.

Consultation with auditors is essential early on where such instruments are considered.

*Originally found on BVCA website.*

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