Conversion of redeemable preference share in to equity share

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LALIT MOHANTY

employment

46 Points Posted on 28 November 2013

Dear All,

Our Company has issued "REDEEMABLE PREFERENCE SHARES" to one share holder.

But the Company is not in position to redeem the same redeemable shares under the permissible provisions of Companies Act; I.e.

(a). Either out of profits of the Company ( The company is making loss)

or (b). out of the proceeds of fresh issue for redemption purpose ( which is not possible in our case)

So there is no way out for redemption of preference share under Companies Act and it will also be violation if we don't redeem as Company can not keep irredeemable shares and it has to be redeemed.

Because of above stated fact, it's now intended to convert either into convertible preference share or in to Equity shares provided permitted under Companies Act and without any violation.

Since we are not able find out any specific provision either in the Act or otherwise may be not in position to interpret the provisions permitting such conversions if any, of redeemable preference share into Equity Shares, I would request you to give your valuable suggestions if such conversion can be permitted or not.

Please suggest is it possible to convert the redeemable Preference Share into Equity shares/convertible preference shares. If yes, then under which section/provision of Companies Act. What is the procedure.

Since the matter is very urgent, your quick valuable input will be highly appreciated.

Thanks In Advance

Lalit Mohanty

Replies (3)

Samrish Bhanja

Managing Partner

21 Points Posted on 27 February 2014

Dear Lalit,

You may alter the terms of issue of Pref Shares under Sec 106 with the consent of 3/4th of the Pref Share holders, make it convertible.

Then convert them into equity by passing Special resolution and file form 23 and form 5 for re-organising of the capital structure.

regards

CS Samrish Bhanja

P C Agrawal

Registered independent director Past Ch

8229 Points Posted on 27 February 2014

Yes, it has been replied by me in separate post at the following link:

/forum/conversion-of-pref-shares-282588.asp#.Uw9omdpWHIU

Incidentally, if maximum period of 20 years has not passed since issue of preference shares, you can also consider extending redemption period within this period by passing special resolution u/s 106.