Procedure for Redemption of Preference Shares


Procedure-Redemption-Preference-Shares


As per the provisions of Section 55(2) of Companies Act, 2013 Preference Shares can only be redeemed either out of the profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of such redemption and where such shares are proposed to be redeemed out of the profits of the company, there shall, out of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption Reserve Account. 

Procedure for Redemption of Preference Shares

1. The following points should be considered before taking the decision of redeeming Redeemable Preference shares that:
a) It should be as per the terms of Issue.
b) They shall be redeemed only out of distributable profits of the company or out of the proceeds of a fresh issue of shares made for the purposes of such redemption.
c) They must be fully paid up.
d) If they are proposed to be redeemed out of profits of the company, a sum equal to the nominal amount of shares to be so redeemed shall be transferred to a reserve called the Capital Redemption Reserve Account.
e) The premium, if any, on such redemption, shall be provided for out of the profits of the company or out of the company’s security premium account, before such shares are redeemed.

2. Redemption on the terms of Issue: Sub-Rule 6 of Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014 provides that “A company may redeem its preference shares only on the terms on which they were issued or as varied after due approval of preference shareholders under section 48 of the Act and the preference shares may be redeemed:-
(a) at a fixed time or on the happening of a particular event;
(b) any time at the company’s option; or
(c) any time at the shareholder’s option.

3. Hold a Board Meeting giving notice to all the directors of the company as per Section 171 and pass the necessary resolution considering the points stated below:
a) the number of preference shares to be redeemed
b) Source of redemption
c) The date of redemption
d) Closure of transfer books

4. Carry out the redemption of preference shares considering both i.e.
a) the terms of issue of preference shares and
b) the Articles of Association of the Company.

5. The notice of redemption of preference shares shall be filed by the company with the registrar in Form SH- 7 with the fee as specified in Companies (Registration of offices and Fees), Rules 2014 within 30 days of redemption of preference shares.
6. In case of Listed Co, inform the Stock Exchange at least 21 days in advance and forward a copy of the Board Resolution to Stock Exchange.

7. Inform the preference shareholders individually about the proposed redemption.

8. Issue a public notice of closure of register of members as provided under section 91 of The Companies act, 2013 at least seven days before such closure.

9. In case of Listed Co, a copy of notice to be forwarded to the stock exchange.
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