Preference dividend

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ritisha (Querist)
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24 July 2013 Here is a query
A newly formed company wants to issue cumulative preference share
The divided will be paid as equity shares
can the dividend be converted into equity shares in case there is no profit in the company and reserves are also negative.

do we need to show dividend payable every year or only at the time of conversion

please answer

Ajay Mishra

Ajay Mishra (Expert)
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24 July 2013 Hi

First of all check your articles, which give permit or not to do so.

Generally, the dividend are not converted in to equity shares.

ritisha

ritisha (Querist)
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24 July 2013 there is permission for conversion
but can it convert its preference dividend to equity shares in case of loss and no rserves

Ajay Mishra

Ajay Mishra (Expert)
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24 July 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.

ritisha

ritisha (Querist)
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24 July 2013 please answer this

ritisha

ritisha (Querist)
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24 July 2013 can the dividend be converted to shares in case of loss??

prefrence share issued is cummulative preference share

Ajay Mishra

Ajay Mishra (Expert)
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24 July 2013 read above answer carefully.

Cumulative preference shares.—In the case of cumulative preference shares, the shareholders are entitled to receive the dividend for a year which could not be paid due to losses or inadequate profits in the subsequent year(s) whenever there are sufficient profit.

ritisha

ritisha (Querist)
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24 July 2013 so if there is no profit then can the dividend be converted to equity shares or not

Ajay Mishra

Ajay Mishra (Expert)
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24 July 2013 No, he has no right of equity shares if the company has no profit.

ritisha

ritisha (Querist)
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24 July 2013 if SR is passed and equity shareholders agree to convert it,
can it be converted?

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