130 Redeemable preference shares

Redeemable preference shares

A company having a share capital may, if authorised by its articles, issue preference shares which are, or at the option of the company. The shares can be redeemed and the redemption shall be affected only on such terms and in such manner as is provided by the articles as mentioned in Section 61(1) Companies Act 1965.

The redemption shall not be taken as reducing the amount of authorised share capital of the company as provided in Section 61(2) Companies Act 1965.

Section 61(3) of the Act states that the shares shall not be redeemed –

(a) except out of profits which would otherwise be available for dividend, or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; and

(b) unless they are fully paid up.

The premium, if any, payable on redemption shall be provided for out of profits or the share premium account before the shares are redeemed as provided in Section 61(4) Companies Act 1965.

Where shares are redeemed out of profits at a sum equal to the nominal amount of the shares redeemed, the amount is to be transferred to a reserve called “capital redemption reserve”. The reduction of the share capital shall apply as if the capital
redemption reserve were paid-up share capital of the company as provided in Section 61(5) Companies Act 1965.

If a company has redeemed or is about to redeem any preference shares, it may issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued. The share capital of the company shall not
for the purposes of any fee be deemed to be increased by such issue as provided in Section 61(6) Companies Act 1965.

The capital redemption reserve may be applied in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares as provided in Section 61(7) Companies Act 1965.

If a company redeems any redeemable preference shares it shall within fourteen days after so doing give notice thereof to the Registrar specifying the shares redeemed as provided in Section 61(8) Companies Act 1965.


Activity 3.2
Question to activity 3.2 Suggested answers to activity 3.2


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