Why Do Offshore Companies Often Have Negative Equity? IFRS Treatment of Preferred Shares

Originally published 2023-09-23Robin's commentary

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English translation of the Chinese post originally published 2023-09-23. Translated 2026-10-25 with AI assistance. Historical figures and claims have not been updated or independently verified. 中文原文

Reading guide

Robin explains a common puzzle: why do many offshore companies have negative equity? A startup's Series A, B, C, and subsequent financings involve preferred shares because of their investment terms. Even when they are not redeemable, anti-dilution provisions, liquidation preferences, and other special terms can cause future share counts to change. Under IFRS accounting principles, accountants classify these preferred shares as liabilities rather than equity. For a Taiwan listing, the company converts all previously issued preferred shares into common shares at once. The amount moves from liabilities to equity, turning equity positive. He also recommends consulting a professional accountant for the details.

Key points

Special terms cause Series A, B, and C preferred shares to be classified as liabilities under IFRS.
This is the main reason given for offshore companies' often-negative equity.
Converting all preferred shares into common shares for a Taiwan listing turns equity positive.
Consult a professional accountant for the details.

Columns and beams in an open building are connected by central rods and balanced weights, suggesting structure and checks in governance. — Capital markets & governanceThematic illustration · AI generated

Full text — English translation

Many offshore companies have negative equity. A startup's Series A, B, C, and subsequent financing rounds are currently classified as preferred shares because of the investment terms. Even if the shares are not redeemable, they may have special provisions such as anti-dilution protection and liquidation preferences, and the share count may fluctuate in the future. Under IFRS accounting principles, accountants classify this series of preferred shares as liabilities rather than equity in the financial statements. To meet the needs of a Taiwan listing, all preferred shares previously issued are converted into common shares at once. They move from liabilities to equity, turning equity positive. For more detail on why preferred shares are classified as liabilities under IFRS, you can consult a professional accountant.

These articles are personal notes, book excerpts, and collected reprints. Figures and events reflect the time of the original publication, are not current information, and do not constitute investment advice.

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