ISSUE OF PREFERENCE SHARES No company limited by shares shall issue irredeemable preference shares however a company limited by shares may if so authorized by its articles, issue preference shares for a period not exceeding 20 years from the last date of their issue subject to such conditions prescribed in rules. The company engaged in setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years, subject to the redemption of a minimum 10 percent of such preference shares per year from the 21st year onwards or earlier, on proportionate basis, at the option of the preference shareholders (Rule 10) The term infrastructural projects means the infrastructural projects specified in Schedule VI of the Companies Act, 2013. Section 55 of the Companies Act, 2013 read with Companies (Share Capital and Debentures) Rules, 2014 prescribes conditions/procedure relating to issue and redemption of preference shares. Checks list:
Check whether nominal capital of company divides into Equity Share Capital and Preference Share Capital.
Check whether there is Provision in Article of Association of company regarding issue of Preference shares.
At the time of issue of Preference shares no subsisting default in the redemption of preference shares issued.
At the time of issue of Preference shares no subsisting default in payment of dividend due on any preference share. Conditions for issue of Preference Shares:
The Issue of Preference Shares has been authorized by Passing of Special Resolution in the General Meeting of company.
Fulfill all the requirement mention in the checks above.
Company requires maintaining a register under Section- 88 (Register of Member) shall contain the particulars in respect of such preference share holder(s).
The company issuing preference shares shall set out in the resolution the particulars in respect of the following matters relating to such shares namely: a) The priority with respect to payment of dividend or repayment of capital vis-à-vis equity shares. b) The participation in the surplus fund. c) The participation in surplus assets and profit, on winding-up. d) The payment of dividend on cumulative or non-cumulative basis. e) The conversion of preference shares into equity shares. f) The voting rights; g) The redemption of preference shares. Condition on Preference Shares: v As per section 55 of the Act, a company can issue only redeemable preference shares i.e. a company is not allowed to issue irredeemable preference shares. v It is mandatory for every company issuing preference shares to redeem it within a period of 20 years from the date of issue. v A company may issue preference shares for a period exceeding 20 (Twenty) years for infrastructure projects. Subject to Redemption of a Minimum 10% of such preference shares per year from the 21 (twenty first) year onward or earlier, on proportionate basis, at the option of preference share holder. (As per rule- 10 of The Companies (Share Capital and Debentures) Rules, 2014. Issuance of preference shares, Explanatory Statement should mention following information: (Companies (Share Capital and Debentures) Rules, 2014) v Size of the issue and number of preference shares to be issued and nominal value of each share;
v Nature of such shares i.e. cumulative or non – cumulative, participating or non – participating, convertible or non – convertible.
v Objectives of the issue;
v Manner of issue of shares;
v Price at which such shares are proposed to be issued;
v Basis on which the price has been arrived at;
v Terms of issue, including terms and rate of dividend on each share, etc.;
v Terms of redemption, including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion;
v Manner and modes of redemption;
v Current shareholding pattern of the company;
v Expected dilution in equity share capital upon conversion of preference shares. E-Forms: Pass special resolution and file with the registrar Form MGT-14 along with the fee or the additional fee so specified in the Companies (Registration of Offices and Fees) Rules, 2014 within 30 days of passing the resolution. 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 |