The TV show Shark Tank features different entrepreneurs pitching the panel of investors for investment stakes in their companies. One of the investment structures sometimes proffered runs along the lines of a $100,000 loan at 4% annually that is convertible to a 20% equity stake once the loan principal has been repaid. Such a structure would be booked, for accounting purposes, as debt until the conversion. This structure is known as deferred equity, and is usually either in the form of convertible debt or preferred shares that pay a coupon annually, which has a common stock conversion provision.
Although each scenario is customized, publicly traded companies using a deferred equity platform for financing will often have call provisions, which allows the company to convert preferred stocks or debentures after a call protection period. Alternatively, large block preferred stock holders, such as Warren Buffett, will often control the rights to sell or convert at the time of their choosing, often with those rights built in due to a white knight financing, such as Berkshire Hathaway assisting GE during the 2008 banking crisis.
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Finance: What is Deferred Compensation?8 Views
Finance allah shmoop what is deferred compensation Well you don't
get it today You get it next year at some
point you know differed If you've gotten paid today it
would have binford but then it was deford's so well
yeah it's money you don't get right now Yeah so
whywould compensation be deferred Well lotsa reasons think about a
bonus that a sales person might earn through out the
year like they get two grand in bonus money payable
next year for each month that they sell over four
pounds of yellowcake uranium powder Bob here did it in
january messed around in february and march and was a
good boy in april may and june and then on
lee hit one more sales goal ahead of christmas doing
four pounds in uzbekistanian november So bob had five months
hitting his sales bonus target and we'll have owed to
him ten grand in bonus money e compensation that was
deferred and noting that all bonuses are paid in january
of the following year like it's deferred to the following
year So from the company's perspective they show deferred compensation
as a line item or a thing on their balance
Sheet is a liability And then they converted to being
an expense when they pay everything out the first month
of the next year so come january Bob will be
very happy with his healthy bonus That is you know 00:01:29.357 --> [endTime] assuming he's still around to enjoy it there No
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