What Is Complex Capital Structure?

The use of different forms of securities, rather than relying solely on one class of common stock. A company with a complex capital structure might have a combination of several different varieties of common stock classes—each carrying dif💧ferent voting privileges and divi⛄dend rates.

For example, a company with a complex capital structure miꦏght use both Class A and Class B co𒀰mmon stock and preferred stock, as well as both callable bonds and non-callable bonds.

How Complex Capital Structure Works

Many companies issue different classes of securities as a means of attracting a wider variety of investors, who have differing needs and temperaments. Furthermore, the di🔯versification of common stock types allows companies to approach market conditions with greater flexibility than those strictly offering single common stock options.

Each dꦫifferent class of securities that a complex capital structure offers, comes with a unique set of economic circumstances and control rights. N🃏otably, investors who hold preferred stocks tend to have greater voting rights than common stockholders.

In any case, the assorted securities offered by complex 💃capital structures are often referred to as “dilutive seꦗcurities” because their dissemination often contributes to a reduction in reduces a company’s earnings per share (EPS). The level of decline is highly dependent on the percentage of dilution, on a case-by-case.

Perks of Complex Securities

Complex securities are not restricted solely to outside investors. In fact, the most typical examples of dilutive securities are stock options paid to executives, who corporations tr❀aditionally compensate with a combination of bonuses, wages, an📖d stock options, which enable executives to purchase newly-issued common stock shares for a set price, during a set period of time.

An executive may exercise their option whenever they choose, during the given time period al🎶lowed, or they may decline to exercise an option alt🎃ogether. The board of directors and the current common shareholders have no authority to decide if and when this happens.

Finally, an organization considered to be a complex capital structure are entitled to augment their total number of com🐼mon shares, at any time, without the approval or direction of the board of directors. This is unlike companies with simple capital structures, which may only increase the number of common shares by decree of ꦓthe board of directors.