Understanding Redemption of Preference Shares
Redemption of preference shares involves the repayment of fixed-rate dividend-bearing shares within stipulated terms and conditions, crucial for companies to comply with company laws. Divisible and Non-Divisible Profits play key roles in facilitating the redemption process. Different types of preference shares exist based on dividend payment, participation, convertibility, and redemption features.
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Chapter-Redemption of Preference Shares
Redemption of Preference Shares Preference share is a part of share capital. Preference shares carry fixed rate of divided. (i.e. 10% Preference share capital, 12% Preference share capital etc.) Redemption means repayment. Redemption of preference share means repayment of preference share capital.
Redemption of Preference Shares Important Points:- As per the company Amendment Act, 1996, Company Cannot issue Irredeemable Preference Shares. According to Company Act, every company can issue Redeemable Preference Shares, which can be redeemed within 10 years from dare of issue. Date, terms and conditions of redemption, divided rate etc. are fixed at the time of issue of shares. Redemption means Reduction in share capital, which is not allowed by company law. Therefor when company want to redeem its preference shares capital. This capital must be replaced either by issue of new equity share capital or new preference share capital or new debentures OR by Capitalizing Divisible Profit. Only fully paid up Preference shares can be redeemed. If preference shares are partly paid up. These shares must be converted into fully paid up shares by following 2 steps. a) Make final call due. b) Received final call.
Redemption of Preference Shares Divisible Profit:- It is also known as Revenue reserve. Divisible profit is use for creation of CRR (Capital Redemption reserve) CRR also can be used for payment of dividend to preference share holders List of Divisible Profit Profit and LossAccount ( Credit Balance) General Reserve Dividend Equalization reserve Workmen Compensation Fund (After deduction of Liability) Workmen Accident Fund (After deduction of Liability) Reserve Fund Sinking Fund/ Debenture Redemption Fund
Redemption of Preference Shares Non-Divisible Profit:- The profit from which dividend cannot be paid to preference shareholders, is known as Non Divisible Profit. List of Non Divisible Profit Security Premium Capital Reserve Revaluation Reserve Debenture Premium Capital Redemption Reserve Investment Allowance Reserve Profit Prior to Incorporation
Redemption of Preference Shares Types of Preference Shares On basis of Divided Payment Participation Convertibility Redemption On basis of On basis of On basis of -Cumulative -Non-Cumulative -Participatory -Convertible -Redeemable - Non participatory - Non-convertible -Non-redeemable
THANK YOU!! Assistant Prof. Pradeep H. Tawade DEPARTMENT OF ACCOUNTANCY, NSS College of Commerce & Eco. Tardeo, Mumbai-34 Email ID pradeeptawade26@yahoo.com Mobile No. 9619491859
