Please read the provision of section 80 and 81 for issue of preference shares.
To qualify the preference share, it should fulfill both the following requirements namely:— (a) that it carries or will carry a preferential right to be paid dividend of a fixed amount or at a fixed rate; and (b) that it carries or will carry a preferential right to repayment of capital paid up where or not there is any other preferential right. In view of the above inclusion of a right to get dividend, whether cumulative or non-cumulative is an inseparable element of preference shares and right to the repayment of capital on winding up. Dividends can be paid to cumulative preference shareholders in winding up whilst assets of the company are being distributed, and they rank in priority to other shareholders both as regards dividend and capital. [Bombay Chlorine Products Ltd., In re (1965) 35 Comp Cas 282 (Bom)]. Where cumulative preference shareholders are entitled to share in surplus of assets on winding up, they are not entitled to preference for arrears of dividend unless there is specific provision for priority to such arrears. Where the preference shareholders are entitled to participate in surplus assets on winding up, surplus assets will include undistributed profits on the date of liquidation. [Dimbula Valley (Ceylon) Tea Co. Ltd. v Laurie (1961) 31 Comp Cas 655 (Ch. D)].
16 June 2013
Voting rights of preference shareholders Section 87(2)(a) provides that every member of a company limited by shares and holding any preference share capital therein shall have a right to vote in respect of such share capital, on every resolutions placed before the company which directly affect the rights attached to his preference shares. It is only if the dividend due on cumulative preference shares remains unpaid for a aggregate period of not less than two years preceding the date of commencement of meeting that a cumulative preference shareholder gets the right to vote on all resolutions. [Hotel Queen Road (P) Ltd. v Hill Crest Reality Sdn. Bhd. (2006) 68 SCL 197 (Del)]. If voting is done by way of poll then preference shareholders will have right to vote in proportion to their shares of the total paid up share capital of the company. The voting right shall be in the same proportion as the capital paid up, in respect of the preference shares bears of the total paid up equity capital of the company. Explanation of section 87(2)(a) provides that any resolution for winding up the company or for repayment or reduction of its share capital shall be deemed directly to affect the rights attached to preference shares within the meaning of this clause. However, as per section 90, provisions of section 85 to 89 are not applicable to a private company as such.
16 June 2013
Period for redemption of preference shares:
Section 80(5A) of the Act provides that w.e.f. 1-3-1997, a company cannot issue preference shares which is irredeemable or redeemable after the expiry period of 20 years from the date of its issue. If a company fails to comply with the provisions of section 80A, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to Rs. 10,000 for every day during which such default continues and every officer of the company in default shall be punishable for a term which may extend to 3 years and shall also be liable to fine.
16 June 2013
Requirement for redemption of shares:
Section 80(1) provides conditions for redemption of preference share which has to be complied with by a company :—
(1) The preference shares shall be redeemed out of profits of the company which would otherwise be available for distribution as dividend or out of the proceeds of a fresh issue of shares made for the purpose of redemption. (2) Only fully paid preference shares shall be redeemed. (3) The premium, if any, payable on redemption shall be provided out of profits or out of the company's security premium account, before the shares are redeemed. (4) Where any preference shares are redeemed out of profits, a sum equivalent to the nominal value of the shares redeemed shall be transferred to the capital redemption reserve fund.
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