Redemption of Preference Shares

Redemption of Preference Shares

Requirements:

1.      Redeemable preference shares can be issued only where authorized by the AoA.

2.      Redemption can be affected either out of profits of the company available for distribution as dividend or from the proceeds of a fresh issue of capital.

3.      When preference shares are redeemed otherwise than out of fresh issue the company must build up a capital redemption reserve under Section 80(1)(d).

Procedure:

4.      Any redemption of redeemable preference shares should be notified to the Registrar within 30 days of the date of redeeming [Section 95(1)(e)].

5.      Clause 21 of the Listing Agreement provides that a listed company is required to fix and notify the stock exchange at least 21 days in advance the day on and from which redemption amount of redeemable shares will be payable.

6.      Clause 21 also provides that cheques for redemption money of redeemable shares should be simultaneously issued.

7.      Redemption by conversion: Redemption of preference shares can be affected only by payment in cash unless the terms of issue provide otherwise.

8.      If date of redemption is being extended, the approval of both preference and equity shareholders would be required.