Equity

Majority vs Plurality Voting in Board Elections Majority vs plurality voting in board elections determines whether shareholders can reject individual directors. Majority voting requires 50% of votes cast; plurality requires only the most votes.

Management Shares A share class reserved for founders or managers that grants disproportionate voting control at incorporation.

Mandatory Convertible Stock Preferred shares that automatically convert to common stock on a specified date or upon the occurrence of a trigger event, eliminating holder optionality.

Mandatory vs Voluntary Corporate Actions Corporate actions are either mandatory (applied to all shareholders automatically) or voluntary (requiring shareholder election). We explain the difference and give examples of each.

Merger Arbitrage An investment strategy of buying shares in an acquisition target and sometimes short-selling the acquirer, betting that the deal will close and capturing the price spread between the offer and current trading price.

Merger of Equals A combination of two similarly sized companies where neither pays a conventional acquisition premium and both shareholders receive new stock in the combined entity.

Minority Shareholder Rights: Protections and Limits Minority shareholder rights explained: legal protections including appraisal rights, tag-along rights, and oppression remedies for owners with small stakes.

Multiple Voting Shares Shares carrying multiple votes per share, typically held by founders or controlling shareholders to retain governance power while raising public capital.

Narrow-Based Weighted Average An anti-dilution formula that resets preferred shares' conversion price using only issued preferred stock, delivering a sharper adjustment than broad-based methods.

Net Settlement (RSU) An automatic withholding mechanism where a portion of vested RSU shares is surrendered to cover employee tax obligations.

New York Shares vs ADR The difference between New York Shares (direct U.S. registration) and ADRs (depositary receipts) for foreign company shares.

Nil-Paid Rights: Trading Rights Before a Rights Issue Closes Nil-paid rights trading in a rights issue: how shareholders sell subscription rights in the open market and calculate their value.

Nil-Paid Rights: What They Are and How They Trade Nil-paid rights are free entitlements issued to existing shareholders as part of a rights offering; holders who don't exercise them can sell them on the market.

No-Action Letter in the Shareholder Proposal Process A no-action letter is the SEC's blessing to exclude a shareholder proposal from the proxy ballot; common grounds include trivial proposals and procedural defects.

No-Par-Value Shares Stock issued without a stated face value, whose proceeds are recorded entirely in the contributed surplus or common stock account.

Non-Participating Preferred Preferred stock that receives a fixed liquidation preference but does not participate in remaining company proceeds.

Non-Participating vs Participating Preferred at Exit Non-participating preferred returns capital first then exits; participating preferred gets capital back plus a share of profits, potentially worth much more at sale.

Non-qualified stock option A non-qualified stock option (NQSO) is an employee stock option that does not meet IRS qualification requirements, making the exercise gain taxable as ordinary income.

Non-voting shares Non-voting shares are a class of common or preferred stock that carry no voting rights at shareholder meetings, while retaining full economic participation in dividends and liquidation.

Notice and Access: How Shareholders Receive Proxy Materials Notice and access allows companies to post proxy materials online instead of mailing them, reducing costs; shareholders can request paper copies.

NQSO Exercise: How Ordinary Income Is Calculated When you exercise a non-qualified stock option, the difference between the exercise price and fair market value on that date becomes W-2 taxable ordinary income.

NQSO vs ISO: Tax Treatment Compared Side-by-side comparison of non-qualified and incentive stock option tax treatment at grant, exercise, and sale, including employer deduction implications.

Odd Lot Holdings of fewer than the standard board lot, historically penalized by exchange rules and illiquidity, now obsolete in most markets.

Odd-Lot Tender A buyback mechanism that grants small shareholders priority to sell sub-round-lot positions at a premium, simplifying the share registry.

Option Expiration The date after which an employee stock option can no longer be exercised, after which the option becomes worthless, typically 10 years from the grant date.

Option Repricing The practice of canceling underwater employee stock options and issuing new ones at a lower strike price to restore incentive value.

Overallotment Option vs Greenshoe: What Is the Difference The overallotment option and greenshoe option are often used interchangeably, but the difference lies in whether the underwriter has promised stabilization.

Par Value of Shares The nominal legal floor price assigned to each share of stock, used to determine minimum capital contributions and legal reserve requirements.

Pari Passu Preferred Stock: Equal-Priority Share Classes Pari passu ranking in preferred stock means multiple series share equal liquidation priority and dividend rights; understand how proceeds split when bankruptcy or sale occurs.

Partial Tender Offer A bid to purchase only a fraction of outstanding shares, with the acquirer and shareholders remaining after the transaction.

Participating Preferred Class Preferred shares that receive cumulative dividends plus the right to participate in residual gains beyond the preference amount.

Participating preferred stock Participating preferred stock is a class of preferred shares that receives its fixed dividend plus a share of remaining profits after the preferred dividend, providing upside potential beyond fixed income.

Pay-to-Play Provision in Preferred Stock The venture capital clause that requires investors to participate in follow-on funding rounds or forfeit anti-dilution protection and preferred status.

Payment Date The date on which a dividend or other distribution is actually paid to shareholders.

Performance Share Unit Vesting Mechanics PSU payouts depend on company performance metrics and modifier multipliers; shares are settled after the measurement period ends.

Performance Shares Equity awards whose vesting is contingent on achieving predefined financial or market performance targets, aligning employee payouts with business results.

Perpetual Preferred Stock Preferred shares with no fixed maturity date or redemption date, conferring a permanent dividend claim and liquidation preference on the holder.

Phantom Stock A cash-settled synthetic equity award that mirrors share value without granting actual ownership or voting rights.

Phantom Stock Plan A cash-based incentive plan that mirrors actual share price appreciation without issuing real equity, used to retain employees and managers.

Phantom Stock Plan: How It Works Phantom stock plans deliver equity-like returns without actual share issuance. Learn how companies structure these deferred-compensation arrangements and their tax treatment.

PIK Preferred Stock Preferred shares that pay dividends in additional shares rather than cash, deferring cash outflows and compounding ownership.

PIPE offering A PIPE offering (private investment in public equity) is a private sale of shares by a public company to institutional investors at a negotiated price, typically at a discount to market.

Post-Termination Exercise Window The limited period after leaving a company during which an employee can exercise vested stock options before they expire, typically 90 days or the full option term.

Preemptive Rights Right of existing shareholders to purchase new shares proportionally before other investors in an equity offering.

Preemptive Rights: How Existing Shareholders Avoid Dilution Preemptive rights allow existing shareholders to maintain ownership stakes when companies issue new shares, preventing dilution of their holdings.

Preference Shares Equity shares, primarily used in UK and Commonwealth jurisdictions, with preferential rights to dividends and assets, synonymous with preferred stock in U.S. terminology.

Preferred stock Preferred stock is a hybrid security sitting between bonds and common stock, paying a fixed dividend and claiming priority in both dividend payments and liquidation, but typically carrying no voting rights.

Preferred Stock Conversion Ratio Explained How preferred stock conversion ratios work, anti-dilution mechanics, and what happens when preferred shares convert to common stock.

Preferred Stock Dividend Arrears Preferred stock dividend arrears: how unpaid cumulative dividends accumulate, compound, and affect company obligations and investor priority in acquisitions.

Preferred Stock Dividend Coverage Ratio Measure of whether a company earns enough to pay its preferred dividends, and what a low ratio signals to credit risk.

Preferred Stock Features Hybrid security combining equity characteristics with fixed-income features, including dividend priority, liquidation preference, and conversion rights.

Preferred Stock Seniority Stack in a Startup Cap Table Preferred stock seniority stack determines payout order in a startup cap table: Series A sits above B, B above C, and all sit above common stock.

Preferred Stock vs Common Stock: Key Differences Preferred stock vs common stock differences in voting rights, dividend priority, and liquidation order. Understand what each share class delivers to investors.

Pricing Committee The group responsible for setting the final offer price and share allocation in an initial public offering, balancing underwriter guidance with market conditions.

Private placement A private placement is the sale of securities (shares, bonds, or other instruments) directly to a limited number of accredited or institutional investors, outside the public market.

Profit Interest Units An LLC equity award that grants future appreciation rights only, deferring tax liability until the recipient actually sells or receives cash.

Profits Interest A limited partnership grant that entitles an employee to a share of future profits and appreciation, with favourable tax treatment at issuance.

Profits Interest vs Equity Grant in a Partnership Understand the difference between a profits interest vs equity grant in partnerships and LLCs: tax timing, economic rights, and practical implications.

Prospectus The mandatory disclosure document filed with regulators and distributed to investors before a public share offering.

Proxy Contest A campaign in which an activist investor or competing faction solicits shareholder votes to replace board members without purchasing the company.