2.5 Convertible Preferred Shares
Entities are not often required to classify a convertible preferred share as a
liability under ASC 480. However, such a share would be classified as a liability
under ASC 480 if:
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It has a mandatory redemption date and requires the issuer to settle the liquidation value (i.e., par amount) in cash upon a conversion into common stock (see Section 4.2.4). Such an instrument is also subject to the guidance on convertible debt in ASC 470-20, including the disclosure requirements in ASC 470-20-50 (see ASC 470-20-15-2D).
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It has a mandatory redemption date and a conversion feature that is not substantive (see Sections 3.2 and 4.1.3).
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It has a mandatory redemption date and is reclassified as a liability once a substantive conversion option expires (see Section 4.1.3).
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It has a mandatory redemption date and is convertible into shares that are unconditionally redeemable for cash or other assets (see Section 4.1.3).
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It is mandatorily convertible into a variable number of shares whose monetary value is based solely or predominantly on a fixed monetary amount, variations in something other than the fair value of the issuer’s stock, or variations inversely related to the fair value of the issuer’s stock (see Section 6.1).