Characteristics of rolling actions

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A class of shares that is often found in corporate capital structures and often included in the articles ofincorporation is the rollover (or freeze) share class. Rollover shares are used primarily for tax planning purposes and therefore have special characteristics. Rollover of property to a company and estate freezes are the most common planning purposes when using this type of share.

1. Non-voters

Like "normal" preferred shares, rollover shares are generally non-voting. Holders of these shares are therefore not entitled to vote at annual or special meetings of shareholders, except on matters provided for by corporate law requiring class votes.

2. Monthly and non-cumulative dividend

The dividend rate to which holders of rollover shares are entitled is generally monthly and non-cumulative, variable or fixed. The dividend is calculated on the basis of the fair market value of the property received as consideration for the issue of the shares, and has priority over other classes of shares in the event that the amount of the dividend declared is not sufficient to pay the amount payable to all classes of shares. The priority also applies in the event of liquidation or dissolution of the company.

3. Redeemable at the option of the holder or the company

The rollover shares are redeemable for an amount equivalent to the fair market value of the property transferred to the company in consideration for the shares. At any time the company may, at its discretion, redeem all or part of these shares. The holder of the shares may also, at his or her option, request the company to redeem the shares by means of a redemption request notice sent to the company.

4. Price adjustment clause

Systematically, the rights and restrictions in the articles of association concerning rollover shares will provide for a price adjustment clause, in case the tax authorities dispute the fair market value of the property transferred to the company in exchange for the shares. The tax laws provide for certain tax consequences in the event of a rollover of property or freeze of shares, where the transaction price is not equal to the fair market value.

5. Protection of the cash value

Where the articles of a company provide for rollover shares, the power of directors to declare and pay dividends on any class of shares will be limited so that the redemption value of the outstanding rollover shares is protected. Thus, generally the board of directors will not be able to pay any dividends if the company would then no longer have the net assets to pay the redemption value of the shares.


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