Company Law

Issue and Redemption of Preference Shares [S. 55]

1.

NOT permitted to issue [S. 55(1)]
  • Irredeemable preference shares

2.

Preconditions for issue (of redeemable Preference Shares)

[S. 55(2), R. 9(1)]
  • Authorised by AoA
  • Authorized by passing a Spl Reso in the GM
  • At the time of such issue of preference shares, the Co has no subsisting default in the redemption of preference shares issued either before or after the commencement of Co Act 2013 or in payment of dividend due on any preference shares

3.

Tenure

[S. 55(2), R. 10]
  • Maximum 20 years
    • For infrastructure projects (specified in Schedule VI to the Co Act 2013) : can be > 20 years, but NOT > 30 years
      • Redemption of minimum 10% on an annual basis from 21st year at the option of Preference SH

4.

Redemption out of -

[S. 55(2), 2nd proviso, R. 8(4)]
  • Profits available for dividend
    • sum equal to the nominal amount of the shares to be redeemed out of such profits, be transferred to Capital Redemption Reserve A/c
  • Proceeds of fresh issue of shares made for the purpose of such redemption

5.

Premium on redemption, if any, to be provided before redemption of preference shares [S. 55(2), 2nd proviso, (d)]

By such prescribed class of Cos whose FS comply with AS prescribed for such class of Cos u/s. 133 ↓

Other Cos OR

premium, if any, payable on redemption of any preference shares issued on or before the commencement of Co Act, 2013 by any Co ↓
  • Out of profits
  • Out of profits
  • Out of Securities Premium A/c

6.

Redemption of preference shares as per its terms
[R. 8(6)]
  • at a fixed time or on the happening of a particular event;
  • any time at the Co’s option; or
  • any time at the SH’s option