Redemption of redeemable preference shares
cssangeetha1
ACSsangeetha Laxmi
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Sachin Kanojiya
ISSUE AND REDEMPTION OF PREFERENCE SHARES (SECTION 55):
No company limited by shares shall issue any preference shares which are irredeemable.
All these preference shares shall be redeemable within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed.
However a company may issue preference shares for a period exceeding twenty years for infrastructure projects subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders.
These shall be conditions for issue of preference shares –
(a) Preference shares shall be redeemed only out of the profit of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of such redemption;
(b) Only fully paid preference shares shall be redeemed;
(c) Where such shares are proposed to be redeemed out of the profits of the company, there shall out of such profits be transferred a sum equal to the nominal amount of shares to be redeemed to a reserve, called Capital Redemption Reserve Account. The provision of this Act relating to reduction of shares capital of a company shall apply as it the Capital Redemption Reserve Account were paid – up share capital of the company. subject to provisions of this section.
(d) In case of such class of companies as may be prescribed and whose financial statement comply with the accounting standard, the premium, if any payable on redemption shall be provided for out of the profits of the company, before the shares are redeemed. The premium if any payable on redemption of any preference shares issued on or before the commencement of this Act by any such company shall be provided for out of the profits of the company or pout of the company’s securities premium account before such shares are redeemed. In case of other companies the premium, if any, payable on redemption shall be provided for out of the profits of the company or put of the company’s securities premium account, before such shares are redeemed.
Where company is not in a position to redeem any preference share or to pay dividend, if any; it may issue further redeemable preference shares equal to the amount sue including dividend thereon, in respect of the unredeemed preference shares and on issue of such further redeemed preference shares, the unredeemed preference shares shall be deemed to have redeemed. This means, preference shares may be redeemed by issuing further preference shares. The conditions to be fulfilled are –
(i) Consent of the holders of three – fourths in value of such preference shares, and
(ii) With the approval of the Tribunal on petition made in this behalf.
The Tribunal shall, while giving approval under this sub-section, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares
This further issue shall not be deemed to be an increase or a reduction 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.
Procedure for redemption of Preference shares
A Call meeting of Board of Director
Call Board meeting by issuing 7 days clear Notice to all the directors with the agenda
B Hold the Board Meeting
· Check the quorum
· Pass the Board resolution for approval of redemption of Preference shares
· Present the letter of redemption of preference shares before the members
C. File the form with ROC
The notice, resolution and minutes of redemption of preference shares shall be filed by the company with the registrar in Form SH- 7 along with the fee as specified in Companies (Registration of offices and Fees), Rules 2014 within 30 days of redemption of preference shares.
Regards
CS Sachin N. Kanojiya