Define: Callable Preferred Stock

Callable preferred stock is a type of stock that gives the issuing company the right to redeem or “call” the shares at a predetermined price and date. This means that the company can buy back the shares from the shareholders at a specified price, usually higher than the original purchase price.

Companies may choose to issue callable preferred stock to have the flexibility to adjust their capital structure or to take advantage of changing market conditions. By redeeming the shares, the company can reduce its dividend obligations or issue new shares with lower dividend rates.

Yes, a company can call back all the outstanding shares of callable preferred stock if the terms of the stock agreement allow for it. However, it is not common for companies to call back all the shares at once, as it may have negative implications for the company’s reputation and relationship with shareholders.

The redemption price of callable preferred stock is typically set at a premium to the original purchase price. It may be a fixed amount or a formula based on the stock’s par value and any accrued dividends. The specific terms of the redemption price should be outlined in the stock agreement.

No, shareholders cannot refuse to sell their callable preferred stock when the company calls it back. The terms of the stock agreement usually give the company the right to redeem the shares at the predetermined price and date, and shareholders are obligated to sell their shares if called.

The terms of the stock agreement may include restrictions on when a company can call back its callable preferred stock. For example, there may be a minimum holding period before the company can exercise its call option or limitations on the frequency of calls.

The terms of callable preferred stock can generally be modified if both the company and the shareholders agree to the changes. However, any modifications would typically require the consent of a majority or supermajority of the shareholders.

The redemption of callable preferred stock may have tax implications for shareholders. Depending on the specific circumstances and applicable tax laws, shareholders may be subject to capital gains taxes on the difference between the redemption price and their original purchase price.

Before investing in callable preferred stock, shareholders should carefully review the terms of the stock agreement, including the call provisions, redemption price, and dividend rates. They should also consider the financial stability and reputation of the issuing company, as well as any potential tax implications. Consulting with a financial advisor or attorney can provide further guidance in making an informed investment decision.