Preference shares, more commonly referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders.
Most preference shares have a fixed dividend, while common stocks generally do not. Preferred stock shareholders also typically do not hold any voting rights, but common shareholders usually do.
(I) Procedure for Issue of preference shares
1. Check authority articles of association
2. Board resolution for issue of preference shares
3. e-Form MGT-14 for filing of Board resolution with registrar within 30 days of passing of resolution (exempted for private companies)
4. Special resolution for issue of preference shares
5. e-Form MGT-14 for filing resolution with registrar within 30 days of passing of resolution along with:
(a) Special resolution along with explanatory statement
(b) consent to shorter notice (if applicable)
6. Board resolution for allotment of preference shares
7. e-Form MGT-14 for filing of Board resolution for allotment with registrar within 30 days of passing of resolution (exempted for private companies)
8. e-Form PAS-3 for return of allotment within 30 days (15days in case of Private Placement/ Preferential Allotment) of date of allotment along with:
(a) List of allottees
(b) Valuation report
(c) Board resolution)
(d) Special resolution along with explanatory statement
(e) Record of private placement offers in form PAS-5 (if applicable)
(f) Copy of contract/complete particulars of contract duly stamped is mandatory to attach in case securities are issued other than cash
9. Entry in register of members in Form MGT-1 within 7 days of allotment
10. Refer additional compliances for allotment by way of private placement or preferential allotment procedure(s) as referred u/s 42 or 62 as the case may be
11. Issue of share certificates as per Section 46 & 56
12. Every unlisted Public Company shall issue its securities in dematerialized form. (For compliances of dematerialisation please refer Quick Referencer under Section 42)
13. Stamp duty adjudication as per provisions & rates of Stamp Act of the relevant state 14. Ensure additional compliance with the conditions as per provision of section and rules thereon
14. Ensure additional FEMA compliances in case of Foreign remittance
(II) Procedure for Redemption of preference shares
1. Check authority in Articles of Association- A company shall issue preference shares which are liable to be redeemed within a period not exceeding 20 years except that for infrastructure projects subject to compliance of the specified conditions.
2. Check terms and conditions of issuance of preference shares applicable for redemption.
3. Board resolution for authorising redemption of preference shares out of
(a) Profits of the company or
(b) proceed of fresh issue of shares made for the purpose of redemption
4. e-Form SH-7 for notice to registrar for alteration of share capital along with board resolution
5. Entry in register of members in Form MGT-1 entry in register within 7 days of redemption
6. Ensure additional compliance with the conditions as per provision of section and rules thereon
(III) Procedure for Application to NCLT for issuing further redeemable preference shares, when Company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue.
1. Application in form NCLT-1 alongwith Form NCLT-2 alongwith the following attachments:
(a) Copy of the Memorandum and Articles of association.
(b) Documents showing the terms of issue of the existing preference shares
(c) Copy of the Board Resolution and resolution of general meeting for issue of further redeemable preference shares.
(d) Copy of the latest audited balance sheet with the profit and loss account the company with auditor’s report and director’s report.
(e) Affidavit verifying the petition.
(f) Bank draft evidencing payment of application fee.
(g) Memorandum of appearance with copy of the Board Resolution or the executed Vakalatnama, as the case may be.
2. On receipt of Order form NCLT, the Company shall file certified copy in Form INC-28 within 30 days.
The article has been prepared considering the relevant Guidelines/ Circulars/ Notifications/ Provisions of the Companies Act, 2013, the rules made there under & The Companies Act, 2013. Readers are requested to cross-check the provisions before acting upon the same. The author will not be liable for any damages or penalties caused.
About Author:- Author Sagar Kapoor is a Practicing Company Secretary at Delhi. Founder of Sagar Kapoor & Associates, The author has core knowledge in Company Law matters specially. You can get in touch with me at [email protected].
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