Dhruv Khandelwal

dhruv-khandelwal

Explanation on Section 47(2) of Companies act 2013 Relating to Voting Rights of Preference Shareholders in a Company

As per Section 47(2),

Equity shareholders shall have a right to vote on every resolution while preference shareholders shall have a right to vote only on those resolutions which directly affect the rights attached to their preference shares and, any resolution for the

  • winding up of the company or
  • for the repayment or reduction of its equity or preference share capital and

their voting right shall be in proportion to their shares in the paid-up preference share capital of the company:

First proviso to Section 47(2) states that the proportion of the voting rights of equity shareholders to the voting rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares.

Let us illustrate this by giving an example:

Suppose, a Company has a paid up capital of Rs. 150 comprising of Rs. 100 as paid up equity share capital (100 shares of Re. 1/- each) and Rs. 50 as paid up preference share capital (50 shares of Re. 1/- each). So, in this case the ratio of paid up equity share capital to the ratio of preference paid up share capital becomes 2:1.

Now, suppose if the Company comes up with the resolution for winding up. In that case, both equity and preference shareholders have a right to vote on the resolution.

For instance, out of 100 equity shareholders, 90% vote against the resolution and the remaining 10% vote in favour. And, out of the 50 preference shareholders, 100% vote in favour of the resolution.

Now, counting of the votes will be done in the manner as mentioned below:

Out of 100 equity shareholders (which are 2/3 of the total shareholders)

90% (Voted against the resolution)

The effective percentage of equity shareholders against the resolution will be calculated as 2/3 × 90/100= 60%

10%(Voted in favour of the resolution)

The effective percentage of equity shareholders in favour of winding up will be calculatedas 2/3 × 10/100= 6.67%

Out of 50 preference shareholders (which are 1/3 of the total shareholders)

100%(Voted in favour of the resolution)

The effective percentage of preference shareholders in favour of winding up will be calculated as 1/3 ×50/50= 33.33%

Now, out of total 150 shareholders (as calculated above)

60% of the total shareholders are against winding up of the Company.

(6.67% + 33.33%) = 40% of the total shareholders are in favour of winding up of the Company.

Second proviso to Section 47(2) states that that where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, then such class of preference shareholders shall have a right to vote on all the resolutions placed before the company just like the equity shareholders.

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Category : Company Law (2998)
Type : Articles (10811)
Tags : Companies Act (1525) Companies Act 2013 (1279)

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