Company without equity shares

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CA Arun Valera

CA Arun Valera (Querist)
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04 December 2011 Can a company be formed with preference shares only?
Pls quote section or case law.
Thanks.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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05 December 2011 No.

A company can not have only preference share capital.

The ordinary meaning of the word "preference" is priority or first choice or preferential treatment. Thus, when you use the word "preference" it is assumed that there exist two things between you distinguish and prefer one of them against the other.

For the existence of preference share capital, thus, presupposes existence of equity shares capital. In other words, without equity share capital there can't be preference share capital.

The Patna high court has also held that before there can be preference shares, there must be at least two classes of dividends governing two such classes of shares in which one class is given a preferential treatment over the other.

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Charu Srivastava

Charu Srivastava (Expert)
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05 December 2011 I agree with Mr. Mitesh.
However the preference Shares do not carry any voting rights.Without voting rights no decision is possible in General Meeting.
There has to have equity Shares without which Company cannot be formed.

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