Section 55(2) of the Companies Act 2013 states that a company limited by shares may as per the authorisation by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed. A company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding twenty years but not exceeding thirty years, subject to the redemption of a minimum ten percent of such preference shares per year from the twenty first year onwards or earlier, on proportionate basis, at the option of the preference shareholders.

Rule 9(6) states that a company may redeem its preference shares only on the terms on which the same shares were issued or as varied after due approval of preference shareholders under section 48 of the Act and the preference shares may be redeemed:-

  • at a fixed time or on the happening of a particular event;
  • any time at the company’s option; or
  • any time at the shareholder’s option

Procedure to issue and redemption of Preference Shares

  • For issue of preference shares the articles of the company should authorize for it, if not then amendment in the articles of the company is required. Also ensure that there are no subsisting defaults in redemption of preference shares earlier or in payment of dividend due on any preference shares.
  • Ensure that the resolution for issuing preference shares contains all the relevant particulars as mentioned above
  • Issue the notice of general meeting along with the explanatory statement, to provide the required details.

In the case of listed entity, intimate the stock exchange at least two working days in advance of the date of board meeting (Refer Regulation 29 of Listing Regulations)

Note: in case of One Person Company for the purpose of passing of ordinary and special resolution in general meeting, any business which is required to be transacted at an annual general meeting or other general meeting of accompany by means of an ordinary or special resolution, it shall be sufficient if the resolution is communicated by the member to the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting for all purpose under this act.

  • Within 30 days of allotment file with the registrar the Return of allotment in Form PAS-3 along with fee as specified in companies (Registration of Offices and Fees), Rules 2014
  • Update the register of members maintained under section 88 after issue of preference shares
  • The company may redeem the preference shares only on the terms on which they were issued or as varied after due approval of preference shareholders
  • The preference shares may be redeemed as given below:

1. At affixed time or happening of a particular event

2. Any time at the company’s option

3. Any time at the shareholders option

  • The notice of redemption of preference shares shall be filed by the company with the Registrar in Form SH-7 along with altered MOA with the fee as specified in Companies (Registration of Offices and Fees), Rules, 2014 within 30 days of redemption of preference shares.
  • Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar are turn of allotment in Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees) Rules, 2014.
  • Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment.
  • Intimate the details of allotment of shares to the Depository immediately on allotment of such shares

Section 55 (3) when a company is not in a position to redeem any preference shares or to pay dividend on such shares as per the terms of issue (such shares hereinafter referred to as unredeemed preference shares) than the company may with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed.

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION.IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

THE AUTHOR CAN BE REACHED AT VINAYAK.CHARU@GMAIL.COM AND AT 6283643738

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