VALUING CONTRIBUTING SHARES

Abstract

Contributing shares, which are only partly paid initially, entitle the holder to a pro‐rata call on the firm's assets. Subsequent payments, if and when made, convert the contributing share into a full ordinary share. This right to convert effectively may reside with different players in various cases. The valuation of contributing shares is developed in the three cases of a fixed obligation to convert, the option to convert is held by the firm and the option to convert is under the control of the contributing shareholders themselves, such as possibly when the contributing shares are held by board members. The valuation is given in closed form solutions for an indefinite life of the contribut..