Preference shares

Preference shares

(1) A company may issue preference shares as provided for in this Act, memorandum of association or articles of association.

(2) Except as provided in the articles of association, no shares issued pursuant to Sub-section (1) shall be converted into ordinary shares.

(3) In issuing preference shares pursuant to Sub-section (1), the following matters, inter alia, shall be disclosed:

• (a) Whether preference is given to receive dividends against ordinary shares;

• (b) Percentage of dividends receivable by preference shareholders;

• (c) Whether dividends get cumulated every year (cumulative) or profits are distributed only in a year wherein profit is made(non-cumulative);

• (d) Whether preference is given while paying amount of share in the event of liquidation of company;

• (e) Whether voting right is attached thereto; and if voting right is attached, whether such right is available only in the case of preference share or also in other matters;

• (f) Whether voting right is available also in other matters pursuant to Clause (e), the proportion to which such right is exercisable;

• (g) Whether preference shares can be converted into ordinary shares;

• (h) Whether the amount of preference shares can be redeemed (redeemable ) or cannot be redeemed (irredeemable) after a certain period;

• (i) Whether, in redeeming preference shares, the premium is payable on redemption.

(4) Where any redeemable shares are issued, the shares shall not

be redeemed unless they are fully paid.

(5) No amount of preference shares shall be redeemed except out of profits which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made by the company for the purposes of the redemption.

(6) Where a premium is payable on the redemption of any redeemable preference shares, there shall be provided for a separate fund out of the profits of the company or out of the company’s shares premium account, for the purposes of redemption of such shares.

(7) Except in cases where any redeemable preference shares are redeemed out of the proceeds of a fresh issue of shares pursuant to sub section (5) , while redeeming preference shares pursuant to this Act, a capital redemption reserve account shall be established and a sum equal to the nominal amount of the shares redeemed shall be transferred to that account, out of profits which would otherwise have been available for dividend.

(8) The capital redemption reserve account established pursuant to Sub-section (7) shall be maintained as if it were the paid-up capital.

(9) After the completion of the redemption of any preference shares redeemed pursuant to this Section, such shares shall be deemed to have, ipso facto, been canceled.

(10) A company shall while redeeming any preference shares, follow such terms and procedures as provided by the articles of association of the company, subject to this Section; and such redemption of preference shares shall not be taken as reducing the amount of authorized share capital of the company.

(11) Where a company has redeemed or is about to redeem any preference shares, it shall have power to issue new shares up to the nominal amount of the shares so redeemed or to be redeemed.

(12) Where a company has redeemed any preference shares, the company shall give information thereof to the Office within one month of such redemption; and on receipt of such information, the Office shall record such information in the company register.

(13) Notwithstanding anything contained elsewhere in this Section, a company may issue new shares to its shareholders as fully paid bonus shares, out of the capital redemption reserve funds established pursuant to Sub-section(7).