CCPS (Indian) vs. Convertible Preferred Stock (American)

By: Amandeep S. Cheema, Esq.

As of 2024, Compulsorily Convertible Preference Shares (“CCPS”) have become the default form of equity offered to venture capitalists and other sophisticated investors in the early financing rounds of an Indian startup. CCPS are a type of preferred shares subject to a mandatory conversion into “ordinary equity” at a later date. In American terms, CCPS function similarly to grants of “convertible preferred stock” in that the subject equity in its original form is conferred with specified preferred rights for the holder, such as fixed dividends, liquidation preference, etc. While a conversion to “ordinary equity” is inevitable for CCPS, convertible preferred stock generally comes with the option to convert.

Below is a side-by-side evaluation of CCPS vs. Convertible Preferred Stock.

As seen above, there are more similarities than differences between CPPS and convertible preferred stock. Furthermore, both the Indian market and the U.S. market have adopted hybrid or alternative forms of convertible preferred equity, including Optional Convertible Preference Shares (limited to India) and grants in the form of a Simple Agreement for Future Equity (also known as a “SAFE”).

For Indian startups looking to expand their operations into the U.S., granting convertible preferred stock or similar convertible equity in an affiliate American entity may be a strategic move. Since the founders and operators of the company are likely familiar with CCPS, they can navigate the complexities having convertible preferred stock on the cap table with greater ease. By leveraging similar financial instruments effectively, Indian companies can position themselves to attract significant investments in the U.S. while managing a familiar level of risk despite operating in a new market.

Disclaimer: The content posted herein must not be interpreted as legal advice. Any information provided is for general informational purposes only and does not establish an attorney-client relationship. For personalized legal advice regarding CCPS, convertible preferred stock, or any other subject matter mentioned herein, please consult with a qualified attorney.