Redemption of preference shares

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Rushabh Shah (Querist)
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07 February 2014 If company have a redeemable preference share, can it redeem by paying Redemption price in some 12 or less than 12 monthly installments?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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07 February 2014 Depends on the terms and conditions laod out fot redemption.

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Rushabh Shah

Rushabh Shah (Querist)
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08 February 2014 But suppose i have issued Preferance Share to only 1 Member before two year and now i want to redeem pref share and the said share holder agrees for payment in installment, can we make payment in 7 installments?

Return on pref share will be compounded on financial year basis or year from the date of issue?

Thanks for your Reply Mr. Nikhil.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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20 July 2025 Yes, a company can redeem preference shares in instalments, provided the following conditions are met:

✅ Key Points to Consider:
1. Legal Provision – Section 55 of Companies Act, 2013:

Redemption of preference shares must be out of:
Profits available for distribution as dividends, or
Proceeds of a fresh issue of shares.
2. Payment in Instalments:

The Companies Act doesn’t explicitly prohibit redemption in instalments.
If only one shareholder is involved and both parties agree, payment in 7 monthly instalments is permissible as long as:
It is within the terms and conditions approved by the Board/shareholder agreement.
Full redemption happens within the period mentioned in the issue terms (typically not exceeding 20 years).
The accounting reflects it properly (i.e., the liability is recorded correctly for unpaid instalments).
Note: Technically, redemption occurs only when the full amount is paid, so staggered payment may be treated as a contractual arrangement rather than staggered "redemption" unless stated otherwise in the issuance terms.
📌 Return (Dividend) on Preference Shares:
Dividend is not compounded unless it is expressly agreed in the terms of issue.
Generally, dividend is simple (e.g., 10% p.a. on face value).
If the issue terms are silent, dividend is calculated on a financial year basis (i.e., April 1 to March 31).
✅ What You Should Do Practically:
Pass a Board Resolution approving redemption and payment in instalments.
Enter into a formal agreement or shareholder consent letter with the preference shareholder.
Ensure that redemption is completed within the time allowed under Section 55.
Disclose appropriately in financial statements as a liability until fully paid.
If needed, I can provide you with:

A Board resolution format
A payment-in-instalment agreement format
A note on accounting treatment for partial redemption

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