Preference share are redeemable for private company

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Querist : Anonymous

Querist : Anonymous (Querist)

14 June 2012 Whether preference shares are compulsory for every company to redeem the share within 20 years or not.and also compulsory to create CRR for every company to redeem the shares.pls give answer in brief.

Ajay Mishra

Ajay Mishra (Expert)
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14 June 2012 Hi

Redeemable preference shares.—Section 80(1) provides that a company limited by shares may, if so authorised by its Articles, issue preference shares which are to be redeemed at the option of the company.

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.

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.

Regards

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