Preferred Shares Classification

Preferred Shares Classification

Preferred shares are shares that have privileges compared to ordinary shares in terms of voting rights, profits, liquidation proceeds, or any other rights, provided that the shares of the same type are equal in rights, advantages, and constraints.

In the State of Kuwait, the Capital Markets Authority “CMA” has issued the rules governing the issuance of preferred shares and dealing in them, according to Chapter 13 “Rules for Preferred Shares” of Module 11 – Dealing in Securities.

What is the significance of the preferred shares?

Preferred shares are of great significance to all parties involved in securities dealings, whether for investors, issuers, or the market. Preferred shares represent a source of financing for companies and diversification of their investments. They also help raise the necessary liquidity and thus stimulate the investment environment, providing returns for investors and priority for them compared to ordinary shareholders.

How are preferred shares issued?

Preferred shares are issued by means of a private placement only, and the Capital Markets Authority may approve the public offering of preferred shares according to a subscription prospectus approved by the Authority.

Is it mandatory to appoint an auditor registered with the Authority to give assurance opinion regarding the classification of preferred shares?

Yes, the issuer of preferred shares should provide an opinion from an auditor registered with the Authority supporting the issuer classification of preferred shares for accounting purposes.

Article 13-15 of Chapter 13 – Preferred Shares Rules, of Module 11 “Dealing in Securities” stipulates that:

“An Issuer shall classify the Preferred Shares for accounting purposes in accordance with the International Financial Reporting Standards, taking into consideration the Preferred shares structure. The Issuer shall submit an opinion of an Auditor registered with the Authority supporting its classification of the Preferred Shares with a statement of the assumptions under which they have formed their opinion concerning the classification. The Authority shall have the right to require the Issuer to reclassify any such Preferred Shares.”

What is the auditor’s framework for preparing the Preferred Shares Classification Support Report?

The auditor performs the scope of work on the classification of preferred shares in accordance with the International Standard on Related Services 4400 (ISRS 4400) Agreed-Upon Procedures Engagements.

What is the added value to business entities from preparing the Preferred Shares Classification Support Report?

  1. Ensure compliance with regulatory requirements issued by the Capital Markets Authority.
  2. Provide an independent professional opinion on the fair presentation of the financial information related to preferred shares.

What is the competitive edge of Baker Tilly Kuwait in providing these services?

Baker Tilly Kuwait is distinguished by specialist professional experience and offers the following characteristics carrying added value to our clients as follows:

  • A global accounting firm operating in the State of Kuwait
  • The firm has licensed auditors registered in the Ministry of Commerce & Industry’s Auditors Register
  • The firm has licensed auditors who are registered with Capital Markets Authority
  • Local experience under an international umbrella
  • Professional team with in-depth experience in providing assurance services
  • Bilingual team
  • Complete understanding of the regulatory requirements of the Ministry of Commerce and Industry