Question

Conversion rights a.allow investors to convert to a different class. b.establish whether shareholders are entitled to dividends. c.are designed to prevent dilution of a shareholder's ownership in the company. d.specify the order in which classes of stockholders are paid upon dissolution.

Answer 1

a.allow investors to convert to a different class.

Step-by-step explanation:

Conversion rights of a shareholder allows him to convert preferred shares to ordinary shares. This is important as it is used to calculate other rights of shareholders. Calculation involves use of the outstanding number of company shares as a on as converted basis. This means that when calculating total number of shares we also consider the number of shares preferred stock will be converted to.

There are two types of conversions.

The mandatory conversion involves mandatory conversion of preferred shares to ordinary shares on occurrence of some events.

Optional conversion is when the shareholders willing convert their shares because it is advantageous to them.