Dividend on preference shares

This query is : Resolved

Chinki Sharan (Querist)
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19 July 2018 hi

My company has foreign corporate as preference shareholders. we have not paid dividend on the same for 2 continuous years. In terms of sec 47 this non payment will lead to assigning of equal voting rights to the mentioned pref. shareholders.

We do not have adequate profit and also no free reserve. Request you to guide me to resolve the issue.

Thanks and regards!

CS Peer mehboob

CS Peer mehboob (Expert)
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20 July 2018 Preference Shares are of two types. Cumulative and Non-Cumulative. Cumulative Preference Shares are those, in which dividend gets cumulative if company does not earn profits in any year. And cumulative dividend has to be paid as and when company earns profits in any year. However, on the other side, if preference shares are non cumulative, company is not bound to pay dividend if it has not earned profit in any year. Further, as per Section 47, if dividend is not paid to preference shareholders for a period of two years or more, then preference shareholders shall have the right to vote in all general meeting. Therefore, in your case if company is not having profit, company is not under obligation to pay dividend to its preference shareholders, company has to pay cumulative dividend if company earns profit and till then those preference shareholders shall have right to vote in every general meeting.