Issue of preference shares

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 December 2012 SIR

IF A COMPANY HAVE TO ISSUE 12% PREFERENCE SHARES @ 30% PREMIUM. WHETHER THIS SLAB IS ALLOWED AS PER ACT..

PLEASE GUIDE ME.

Ajay Mishra

Ajay Mishra (Expert)

31 December 2012 Hi

Yes, you can do so, but it should be mentioned in company's authorized share capital.

A company limited by shares may, if authorised by its Articles, issue preference shares. This means that a public company or a private company may issue preference shares only if its Articles authorise to do so.
6. Basic requirements of the 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.

Ajay Mishra

Ajay Mishra (Expert)

31 December 2012
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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