You work for a company and get stock as part of your compensation package. However, these shares have a clause that makes them mandatorily redeemable in some circumstances.
So the company can make you sell the shares back to the firm if some pre-set situations come up. One of these triggering events happens if you leave the firm. They don't want a potentially disgruntled ex-employee walking around with a big chunk of company stock. So they only give employees mandatorily redeemable shares.
You get in a fight with the CEO. Insults are shouted. Chairs are thrown. Kale/protein shakes are poured on heads. Bottom line: you're out.
And, as part of your departure, the company calls in your mandatorily redeemable shares. You have no choice...the company forces you to sell the shares back to them at the prices stipulated in the clause.
Related or Semi-related Video
Finance: What Rights Does a Public Stock...67 Views
Finance, a la Shmoop. What rights do you have as a common [intro screen]
stock public shareholder? All right, so you've saved your newspaper delivery money now [question on chalk board]
for a year, saved over two grand, and you've had your
eye on a hundred shares of whatever.com, which conveniently hit exactly 20 bucks [person buys shares]
a share today, including commissions, if you want to sell it. So you buy a hundred
shares for two grand. Now what? What rights do you have? Well, you always have
your right to party... old song, ask your parents. All right, but that won't help you [people party]
here. The company does wonderfully over the next few years and hits 40 bucks a
share. Well, you have a right to sell the stock, book your profit, pay your taxes... [share price graph]
yeah. And the same would be true if the company did horribly. Yeah, you could sell
it at 12 bucks, book your losses, come back to fight another day after crying. [sad words]
But as a minority shareholder in whatever.com where you own a hundred
shares out of the total 20 million they have outstanding, you own 100/20 million, [tiny person with lots of shares]
or 0.000005% of the company. So what rights should you
have? You're not exactly the control shareholder. Well, as a common shareholder, [person realizes his own insignificance in this cruel world]
American law gives you only a few rights, the biggest of which is to be able to
vote for the board of directors. You know, who then hires the CEO. So that's it. [person votes for board]
That's your big right that you have as a public shareholder. You can vote for
the board. And yes, you will cast a fraction 100/20 million of the [really tiny pie sliver]
votes, a very small percentage. About like voting for your local congressman, you'll
have some impact but not much. The key take away? Well, you don't have many [person talks to congressman]
rights. If they pay a dividend, you'll get that, and there are some other little
legal things, but don't hold your breath without a big oxygen bottle. So before [person with oxygen mask]
you hop into bed with a given stock investment, be pretty comfy that you have
confidence in the lunatics running the asylum. Yeah, or it could end up [people in asylum]
being a very bad investment.
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