As per Section 43 of the Companies Act, 2013 Preference Share Capital, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to:
(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate;
(b) repayment, in the case of a winding up or repayment of capital
The issuance of preference shares can be a very advantageous tool where the Company doesn’t intend to loose ownership or control but at the time is in need of funds as well. In this write, up we shall discuss about the procedure to issue preference shares by the Company:
PROCEDURE TO ISSUE PREFERENCE SHARES
Sections Applicable: Section 55 of the Companies Act, 2013
Rules Applicable: Rule 9 and 10 of Companies (Share Capital and Debentures) Rules, 2014
Preliminary Conditions:
- No Company shall issue irredeemable preference shares.
- Preference shares shall be liable to redeemed within a period not exceeding twenty years from the date of their issue.
- A company may issue preference shares for a period exceeding twenty years up to thirty years for infrastructure projects, 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.
- At the time of such issue of preference shares, Company has no subsisting default in the redemption of preference shares issued before.
- Company has no subsisting default in payment of dividend due on any preference shares.
Procedure:
- Check whether the issuance of preference Shares is authorised under Articles of Association or not. If not, amend the articles with respect to issuance and redemption of preference shares.
- Draft Notice of Extra Ordinary General Meeting along with an Explanatory Statement pursuant to Section 102 of Companies Act, 2013 which shall state all the material facts including the following:
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- the size of the issue and number of preference shares to be issued and nominal value of each share;
- the nature of such shares i.e. cumulative or non – cumulative, participating or non – participating , convertible or non – convertible
- the objectives of the issue;
- the manner of issue of shares;
- the price at which such shares are proposed to be issued;
- the basis on which the price has been arrived at;
- the terms of issue, including terms and rate of dividend on each share, etc.;
- the terms of redemption, including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion;
- the manner and modes of redemption;
- the current shareholding pattern of the company;
- the expected dilution in equity share capital upon conversion of preference shares.
- Further, the resolution proposing the issuance of preference shares shall contain particulars in respect of the following matters:
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- the priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares;
- the participation in surplus fund;
- the participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid;
- the payment of dividend on cumulative or non-cumulative basis.
- the conversion of preference shares into equity shares.
- the voting rights;
- the redemption of preference shares.
- Call Board Meeting for the purpose of convening Extra Ordinary General Meeting and other inter alia purposes w.r.t. issuance of preference shares.
- Convene the Extra Ordinary General Meeting and pass the requisite Special Resolution.
- File Form MGT-14 with ROC within 30 days of passing of special resolution.
ATTACHMENTS:
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- Notice of General Meeting along with Explanatory Statement.
- Certified True copy of Special Resolution and explanatory statement.
- Shorter notice consent in case the meeting for convened at a shorter notice.
- Convene Board Meeting for the purpose of passing resolution for allotment of securities to the allottees and accordingly, finalise list of allottees.
- File e-Form PAS-3 with the Registrar, pursuant to Section 39(4) read with Rule 12 of Companies (Prospectus and Allotment of Securities) Rules, 2014, with Registrar within 30 days of the allotment of securities
ATTACHMENTS:
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- List of allottees stating their names, address, occupation, and number of securities allotted to each of the allottees.
Provided further that list of allottees shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.
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- Board Resolution passed for the allotment of securities.
- Bank Statement evidencing that the requisite amount was received on allotment.
Register of Members:
- Where a company issues preference shares, the Register of Members maintained shall contain the particulars in respect of such preference share holder(s) in Form MGT-1 pursuant to the provisions of Section 88 of the Companies Act, 2013 read with Rule 3 of Companies (Management and Administration) Rules, 2014.
Issuance of Share Certificates:
When shares issued are not in Demat Form, Share Certificate shall be issued to the allottees in Form No. SH.1 within 2 months from the date of allotment of shares pursuant to Rule 5 of Companies (Share Capital and Debentures) Rules, 2014.
Please note that if the preference shares are issued to person other than existing shareholders of the Company or employees of the Company i.e. if the issue is a ‘Preferential Allotment’ then can only be issued on price which is determined by the Valuation Report of the Registered Valuer and comply with Conditions mentioned under Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014 in addition to the conditions mentioned above.
{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}
Author Bio
Can we issue Pre Share in Bulk and allot the same in bunch/trenches +