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Reduction of capital(URGENT)

sandhya sethia (trainee) (142 Points)

15 June 2011

URGENT

A company issued 98000 1% Non Commulative Convertible Preference Shares of Rs.100/- each for a sum of Rs.98,00,000/- and according to the term of issue one preference share of Rs.100/- is convertible into one equity shares of Rs.10/- at premium of Rs.90/- per share within a period of three years from the date of allotment.

When the company will convert the preference share into equity share, the preference share of Rs.98 lacs will be converted into equity share of Rs.9.80 lacs and Rs.88.20 lacs will be transferred to Share Premium Account.

Please advice whether aforesaid conversion tentamounts to reduction in share capital required court approval.

Regards

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2 Replies

Rajnikant Vadigoppula (CA, CS And CMA Final) (919 Points)
Replied 15 June 2011

YES IT AMOUNTS TO REDUCTION OF CAPITAL AS PER SECTION 100 OF COMPANIES ACT. U SHOULD HAVE DIVISIBLE PROFIT UPTO 88.20 LACS FOR TRANSFER TO CAPITAL REDEMPTION RESERVE.

DIVISIBLE PROFIT MEANS THE RESERVES AVAILABLE FOR DISTRIBUTION OF DIVIDEND.

GENERAL RESERVE/PROFIT AND LOSS A/C..................DR 8820000

TO CAPITAL REDEMPTION RESERVE 8820000

NO NEED TO TAKE COURT PERMISSION.

WHEN CONVERTED REQUIRED TO FILE E-FORM-2 FOR ALLOTMENT AND E-FORM-5 FOR REDUCTION IN CAPITAL

Manish Mishra (CS) (36 Points)
Replied 15 June 2011

Will need further consideration here, Please refer to the regulation for Securities Premium account. It should be treated equivalent to Capital, further there seems no reason for creating Capital Redemtion Reserve on Conversion of preference shares.

Further this will not amount to reduction in share capital.