Why companies act 2013 does not permit a company to issue irredeemable preference shares ?

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The Companies Act 2013 does not permit companies to issue irredeemable preference shares. This is primarily because preference shares are typically issued to investors with an expectation of a fixed dividend, especially during a company's early, stabilising phase. The law aims to protect these shareholders by ensuring their investment can eventually be redeemed, rather than leaving them with an indefinite holding without dividend assurance, particularly once the company becomes profitable.

Neev Garg

Neev Garg (Querist)
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18 July 2022 I want to know why a companies act 2013 does not permit companies to issue irredeemable preference shares I want to know the logic behind it.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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18 July 2022 Preference shares are issued to investers for an assured dividend initially during the period of stabilization of business. We have to take of care of the share holders invested without any assurance of dividend at a later stage when company is doing well. So this the reason for it.

Neev Garg

Neev Garg (Querist)
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18 July 2022 Thanks sir for your precious time.

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