Redemption of Redemption of preference sharespreference shares

Introduction—Introduction—redemption of redemption of preference shares means return of preference shares means return of share money to the shareholder & it’s share money to the shareholder & it’s possible only through issue of possible only through issue of preference shares.preference shares.

Conditions for issue of Conditions for issue of preference shares-preference shares-

Authorised by articlesAuthorised by articles Redemption of fully paid sharesRedemption of fully paid shares Contd.Contd.

Conditions contd.Conditions contd. Redemption out of profit or by issuing new Redemption out of profit or by issuing new

shares-shares- Preference shares can be redeemed either out Preference shares can be redeemed either out

of profits available for dividend or out of of profits available for dividend or out of proceeds of fresh issue of sharesproceeds of fresh issue of shares

Out of profit- an amt.equivalent to the face Out of profit- an amt.equivalent to the face value of shares is tranferred to ‘capital value of shares is tranferred to ‘capital redemption reserve a/c’.the advantage of such redemption reserve a/c’.the advantage of such transfer is that the pref. sh.cap.redeemed transfer is that the pref. sh.cap.redeemed would be replaced by cap.red. Reserve.would be replaced by cap.red. Reserve.

Profits available for dividend means those Profits available for dividend means those profits which can be paid as dividend by the profits which can be paid as dividend by the co.--co.--

Profit tableProfit tableProfits available for Profits available for dividenddividend

Profits not available Profits not available for dividendfor dividend

1.Profit & loss a/c1.Profit & loss a/c

2.General reserve2.General reserve

3.Reserve fund3.Reserve fund

4.Dividend 4.Dividend equalisation fundequalisation fund

5.Insurance fund5.Insurance fund

6.workmen’s accident 6.workmen’s accident fundfund

7.Debenture 7.Debenture redemption fundredemption fund

1.Securities premium 1.Securities premium a/ca/c

2.Share forfeiture a/c2.Share forfeiture a/c

3.Capital reserve3.Capital reserve

4.Profit prior to 4.Profit prior to incorporationincorporation

5.Investment 5.Investment allowance reserveallowance reserve

Note; Above profits Note; Above profits can not be can not be transferred to Cap. transferred to Cap. Red. Res.Red. Res.

Redemption by issuing new Redemption by issuing new sharesshares

New issue of equity or preference New issue of equity or preference shares may used for the purpose of shares may used for the purpose of redemption. If the co. issues redemption. If the co. issues debentures or loan taken from debentures or loan taken from bank,for this purpose, it will not be bank,for this purpose, it will not be used for redemption of pref. shares.used for redemption of pref. shares.

Redemption partly out of profit Redemption partly out of profit and partly by issuing new sharesand partly by issuing new shares——

Conditions contd.Conditions contd.

Utilisation of capital redemption reserve Utilisation of capital redemption reserve a/c—for fully paid shares onlya/c—for fully paid shares only

Redemption within one month from Redemption within one month from issue of new sharesissue of new shares

Redemption at premium-either out of Redemption at premium-either out of securities premium a/c or out of profitssecurities premium a/c or out of profits

Registrar to be informed within 30 daysRegistrar to be informed within 30 days

Bonus sharesBonus shares

If the co. has accumulated more If the co. has accumulated more reserves than normally necessary, it reserves than normally necessary, it may distribute this excess reserve in may distribute this excess reserve in the form of bonus shares.bonus shares the form of bonus shares.bonus shares means the shares without cost for which means the shares without cost for which nothing is paid by the shareholders.nothing is paid by the shareholders.

-by making partly paid shares as fully -by making partly paid shares as fully paidpaid

-by issue of free fully paid new shares-by issue of free fully paid new shares

Guidelines of SEBIGuidelines of SEBI The co. shall forward a certificate signed by it’s The co. shall forward a certificate signed by it’s

c.a. or c.s. to the effect that the rules regarding c.a. or c.s. to the effect that the rules regarding this have been complied with.this have been complied with.

No bonus issue will be made which will dilute the No bonus issue will be made which will dilute the value or rights of holders of debentures, value or rights of holders of debentures, convertible fully or partly.convertible fully or partly.

Bonus issue is made out of free reserves built out Bonus issue is made out of free reserves built out of genuine profits or securities premium collected of genuine profits or securities premium collected in cash only.in cash only.

Reserves created by revaluation of fixed assets Reserves created by revaluation of fixed assets are not capitalised.are not capitalised.

Declaration of bonus issue is not made in lieu of Declaration of bonus issue is not made in lieu of dividend.dividend.

Contd.Contd. The proposal must be implemented within 6 The proposal must be implemented within 6

months from the date of approval by board of months from the date of approval by board of directors.directors.

The co. has not defaulted in the payment of The co. has not defaulted in the payment of statutory dues ,interest in respect of fixed statutory dues ,interest in respect of fixed deposits,& interest on debentures.deposits,& interest on debentures.

If provision is not there in articles regarding If provision is not there in articles regarding capitalisation of reserves, the co. shall pass a capitalisation of reserves, the co. shall pass a resolution in its general body meeting.resolution in its general body meeting.

If authorised or subscribed cap. Increases due to If authorised or subscribed cap. Increases due to this ,a resolution shall be passed in general body this ,a resolution shall be passed in general body meeting to increase the capital.meeting to increase the capital.

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