TYPES OF SHARES IN BOLIVIAN CORPORATIONS

COMMON SHARES

Each common share grants its holder the right to one vote at general meetings. This means holders of these shares have direct influence over the company’s strategic decisions. Additionally, they are entitled to a share of the dividends once preferred shareholders, if any, have been paid.

For instance, if a company has 1,000 common shares in circulation and a shareholder owns 100 of them, that shareholder is entitled to cast 100 votes at the general meeting and receive 10% of the distributed profits assigned to common shares.

PREFERRED SHARES

Preferred shares, on the other hand, offer their holders specific economic advantages, such as a priority dividend before distributions to common shareholders. These dividends may be fixed or higher than those of common shares if stipulated in the bylaws. However, preferred shares come with a limitation: they do not grant voting rights in ordinary meetings, though holders may participate with voice.

A key exception arises when preferred dividends are not paid for three fiscal years, even if non-consecutive. In such cases, preferred shares gain full voting rights, temporarily equating them to common shares, until the overdue payments are settled.

For example, suppose a corporation commits to paying an 8% annual preferred dividend but does so for only one year. After three years without fulfilling this obligation, preferred shareholders acquire voting rights at the general meeting alongside common shareholders, until the outstanding amount is paid.

LEGAL RIGHTS OF PREFERRED SHAREHOLDERS

Holders of preferred shares also benefit from protective mechanisms. These include the right to oppose resolutions adopted by the general meeting on matters that directly affect them, placing them on equal footing with minority holders of common shares.

In the event of a company liquidation, preferred shareholders have priority in the reimbursement of their contributions over common shareholders, thereby protecting their investment during critical situations.

For instance, if a company undergoing liquidation has Bs. 2,000,000 in liquid assets, preferred shareholders will be reimbursed first according to the value of their shares, reducing the risk of capital loss.

CONVERSION AND REDEMPTION OF PREFERRED SHARES

Legislation permits the redemption or conversion of preferred shares into common shares, based on the conditions set at the time of issuance. This provides corporations with flexibility to adjust their share structure in line with financial and strategic needs.

However, the issuance of preferred shares is subject to a quantitative limit: they may not exceed 50% of the company’s subscribed capital. This restriction aims to preserve the balance between political and economic rights among shareholders.

A company with Bs. 10,000,000 in subscribed capital may issue up to Bs. 5,000,000 in preferred shares, ensuring that common shareholders retain decision-making power in general meetings.

PROHIBITION OF MULTIPLE-VOTE SHARES IN CORPORATIONS

An important provision aimed at safeguarding corporate democracy is the explicit prohibition of issuing shares with multiple votes. That is, no share may grant more than one vote, thereby ensuring equal voting rights for all shareholders.

For example, a share granting three votes in a general assembly cannot be issued, regardless of the shareholder’s level of participation. Each share entitles the holder to one vote only—no exceptions.

CONCLUSION

Understanding the differences between common and preferred shares is crucial for anyone involved in a corporation—whether as a founder, investor, or legal advisor. While common shares emphasize voting rights, preferred shares offer financial advantages but limit political involvement in corporate governance. The current legal framework strikes a balance between these interests, incorporating mechanisms to protect shareholders in various scenarios.