ISSUE AND REDEMPTION OF PREFERENCE SHARES

Section 55 of the Companies Act deals with the Issue and redemption of Preference Shares. The meaning of Issue and redemption of Preference Shares explained below under the Companies Act 2013. The issue of preference shares is one of the important sources of capital of a company. Redemption is the process of repaying an obligation at predetermined amounts and timings. The redeemable preference shares are issued on the terms that share holders will at a future date be repaid amount which they invested in the company.

Companycannot issue irredeemable preference shares or redeemable preference shares with the redemption period beyond 20 years

Issue for preference shares shall not be made unless its authorised by its articles.

Exceptions

Issue and redemption of preference shares by company in infrastructure projects

Rule 10 states that a company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding twenty years but not exceeding thirty years, subject to the redemption of a minimum ten percent of such preference shares per year from the twenty first year onwards or earlier, on proportionate basis, at the option of the preference shareholders.

Conditions for Redemption of preference shares

Fully paid-up preference shares can only be redeemed.
Preference shares can be redeemed only out of the profits available for distribution to its shareholders or out of fresh proceeds of shares issued solely for the purpose of funding the redemption of the preference shares.
If any premium is payable on redemption, it must be paid out of the profits or out of the company’s securities premium account.
Where the redemption of preference shares are redeemed out of the profits available for distribution, a sum equivalent to the nominal amount of shares being redeemed shall be transferred to the Capital Redemption Reserve. The CRR shall be treated as the paid up share capital of the company for all purposes and can also be utilised for bonus issue of shares.
Notice of redemption of preference shares shall be filed with Registrar in Form No. SH-7.
Redemption of preference shares shall not be taken as reducing the amount of its authorized capital.
Where the company is unable to redeem its preference shares or is unable to pay the dividend due on the preference shares, the company can replace issue such amount of preference shares as may be necessary in order to meets its obligation towards dividend payment and also redemption of preference shares.
Redemption of preference shares by issuing new preference shares is subject to obtaining the consent of the preference shareholders (at least 75% of the shareholders) and also obtaining the approval of the Tribunal for such arrangement
The Tribunal shall order the company to immediately redeem the preference shares held by the shareholders dissenting to such arrangement. The issue of preference shares for purpose of redemption of unredeemed preference shares (alongwith the dividend) shall not be considered as an increase in the share capital of the company
The capital redemption reserve account may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.‏

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