Redemption of preference shares

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Querist : Anonymous

Querist : Anonymous (Querist)

13 February 2015 what are the exact procedure for redemption of preference shares of private companies. like holding board meeting, passing resolution, file MGT-14, File form SH-7,
I need full procedure for redemption of shares, and also question is Form MGT-14 file in every amount of redemption or final settlement of redemption to registrar in 30 days.

Querist : Anonymous

Querist : Anonymous (Querist)

14 February 2015 pls do reply of my questions guys its an urgent.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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20 July 2025 Here's the complete and updated procedure for redemption of preference shares by a private limited company under the Companies Act, 2013, including whether MGT-14 is required:

✅ Step-by-Step Procedure for Redemption of Preference Shares

1. Check Articles of Association (AOA)
Ensure the AOA allows issuance and redemption of preference shares.
If not, alter the AOA by passing a special resolution (Form MGT-14 to be filed for AOA alteration).
2. Convene a Board Meeting
Pass a Board Resolution to:

Approve the redemption of preference shares (in full or in part).
Approve the notice for General Meeting (if needed).
Authorize filing of necessary forms (MGT-14, SH-7).
Approve mode of redemption: from profits or fresh issue of shares.
3. Check Conditions for Redemption [Section 55]
Redeemable only out of:
Free reserves (distributable profits); or
Proceeds of fresh issue of shares (but not of the same class).
Fully paid-up shares only can be redeemed.
If redeeming from reserves, a Capital Redemption Reserve (CRR) must be created equal to the nominal value of shares being redeemed.
4. Hold General Meeting (only if needed)
Not mandatory unless Articles require it or fresh issue is made through shareholder approval.
If required, pass special resolution for:
Issue of shares for redemption (if not already authorized).
Approval of redemption terms (if needed by Articles).
5. Make Redemption Payment
Pay the redemption amount (face value + any premium) to preference shareholders.
6. Accounting Entries
Transfer amount equal to face value of redeemed shares to Capital Redemption Reserve (if redemption is out of profits).
Adjust premium on redemption from securities premium account or profit and loss account.
7. Filing with ROC
Form Purpose Time Limit
MGT-14 Required only if a special resolution is passed for redemption (rare in private companies unless AOA demands it or fresh issue approval is needed). 30 days from passing resolution
SH-7 To inform ROC about the reduction of share capital due to redemption. 30 days from redemption
🔁 Whether MGT-14 is required for every redemption?
Not required for every redemption unless:
Special resolution is passed.
Articles demand it.
Share capital clause of MOA is altered (e.g. reclassification).
If no special resolution, MGT-14 is not needed.
✅ Practical Notes:
Private companies (not subsidiaries of public companies) are exempt from filing MGT-14 for Board resolutions (as per Notification dated 5 June 2015).
Maintain proper documentation of redemption, including Board resolution, shareholder consent (if any), payment vouchers, and accounting entries.

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