Co only with Preference capital

[Asuch]

My answer is "NO"

The very term "preference shares" or "preference capital" conveys that they have preference in the matter of payment of dividend and repayment of capital.

Going by this general understanding of "preference", and given the situation that there are only preference shares (and no equity shares), as posed in your question, where is the matter of preference?? i.e., who do the preference shareholders have priority over?? In other words, to have preference, you must necessarily have equity, and if there is no equity, then preference itself is equity - though you may call it as preference. Therefore, in such a case, the words "preference" is a misnomer.

Therefore, a company cannot be incorporated with preference alone.

Further, even assuming that preference shares alone are issued, you may appreciate that preference shareholders are no entitled to vote on any resolution, except those affecting their rights. Therefore, in case you have only preference shareholders and no equity shareholders, who is going to vote on the resolutions?? and how are  the resolutions going to be approved.

Please let me know in case you have a different view.

Thanks
Vinod

On 9/24/07, Asuch <this...@gmail.com > wrote:

This is the question asked with 1 of my frens in an interview:

 

Can a co. b incorporated only with Preference capital?

 

Expecting your earnest response.

--
Vj
Trezrrr every pulsss
http://yehseeyes.blogspot.com/

[mohan arumugam]

Dear Vijay,

My views are as follows:

Company cannot incorporate only with preference share
capital.

Because only with preference share capital, how can
they conduct normal course of business like AGM, EGM
and statutory meeting.

Preference shareholders cannot participate in the day
to day affairs of the business unless their rights
have affected.

In the Companies Act, wherever noted as 'shares' are
only equity shares unless specifically mentioned it as
preference shares.

As per provision of Section 86 of the Act, only new
issues may be equity/preference/equity with
preferential voting rights.

Section 41(3) says that every person holding equity
share capital of a company and whose name is entered
as beneficial owner in the records of the depository
shall be deemed to be a member of the concerned
company

Contradictory views are invited.

Regards,
A.Mohan

--- Asuch <this...@gmail.com> wrote:

> > *Can a co. b incorporated only with Preference
> capital?*

> >
> > Expecting your earnest response.
> >
>
>
> --
> Vj
> Trezrrr every pulsss
> http://yehseeyes.blogspot.com/
>
>
>
>

Travelling to a new city? Search for ATMs in that city. Go to http://in.maps.yahoo.com

[KK Kapoor]

Dear Mr. Vinod,   I agree with you view that  a Co. Can not be incorporated only with Preference capital.    But I look at this matter from different angle. See, Section 87 specifically states that the preference share holders shall have voting right only and only in two cases, FIRST : Resolution DIRECTLY pertains to their right as preference holders., SECONDLY the dividend payable on it is not paid for stipulated period.   Now consider a simple business to be transacted at a General Meeting, no preference holder could vote on it as non of above condition arise, WHAT WILL HAPPEN OF SUCH BUSINESS, (as preference holder can not vote AND equity is not issued; A dead lock arises). Equity-holders are prime and primary source of decision making. Without such class of holders, preference shares can not be allotted. Preference holders can decide matters in the specific conditions BUT the equity holders are actual decision-makers and must they be there if company is limited by shares.   Regards,   CS. KK Kapoor   -------Original Message-------

From: Asuch Date: 26-Sep-2007 3:24:06 PM To: csmy...@googlegroups.com Subject: [CSMysore] Co only with Preference capital   My answer is "NO" The very term "preference shares" or "preference capital" conveys that they have preference in the matter of payment of dividend and repayment of capital. Going by this general understanding of "preference", and given the situation that there are only preference shares (and no equity shares), as posed in your question, where is the matter of preference?? i.e., who do the preference shareholders have priority over?? In other words, to have preference, you must necessarily have equity, and if there is no equity, then preference itself is equity - though you may call it as preference. Therefore, in such a case, the words "preference" is a misnomer. Therefore, a company cannot be incorporated with preference alone. Further, even assuming that preference shares alone are issued, you may appreciate that preference shareholders are no entitled to vote on any resolution, except those affecting their rights. Therefore, in case you have only preference shareholders and no equity shareholders, who is going to vote on the resolutions?? and how are  the resolutions going to be approved. Please let me know in case you have a different view. Thanks Vinod

[kama...@rediff.com]

Dear Friends

By defenition, preference shares have preferential rights over other
categories of shares with respect to payment of dividend or repayment
of capital.In case of company incorporated only with preference shares
this cannot happen.
one more feature that distinguishes preference shares from equity
shares is with regard to payment of fixed amount of dividend or an
amount calculated at a fixed rate........

My question here is can a company be inorporated with all its shares
having fixed rate of dividend???

What I feel is this cannot happen since a company must have some
equity base(where risk is maximum
with possibility of high rewards) in its capital structure.
otherwise there will be no balance in the capital structure.

Please let me know if anywhere i am wrong

Regards

Kamal

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