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Issue of preference shares

CA Saxena (CA) (161 Points)

14 February 2012

hi all,

i want to know what is the procedure to issue Preference share in a pvt ltd co at premium.

and is there any limit on premium..

thanx in anticipation

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4 Replies

sachin (job) (67 Points)
Replied 14 February 2012

First thing you must know i.e. No issue of shares on a preferential basis can be made by a company unless authorised by its Articles of Association and unless a special resolution is passed by the members in a General meeting authorizing the Board of Directors to issue the same.

After confirming above you must called EOGM giving prior notice before 21 Days and passed the Ordinary resolution (If preferential issues is authorised by Articles of Association) or Special resolution

After passing resolution kindly alter Memorandum of Association of Company as per your Capital Structure.

There is no limit for premium you can keep any amount as face value and premium as per your convince. E.g. face value Rs.10 and Rs.90 as a Premium.

After all this download Form 5

Fill the necessary details

Kindly attach your altered MOA of company in Attachment documents

Also Attach certified copies of ordinary resolution and Annexure of EOGM

for any further information and details you can mail me at sachin_dabade @ live.com

Regards ,

Sachin Dabade

CS Final Student

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Ajay Mishra (Company Secretary) (74337 Points)
Replied 15 February 2012

Basic requirements of the preference shares

A company limited by shares may, if authorised by its Articles, issue preference shares. This means that a public company or a private company may issue preference shares only if its Articles authorise to do so. To qualify the preference share, it should fulfill both the following requirements namely:—

(a) that it carries or will carry a preferential right to be paid dividend of a fixed amount or at a fixed rate; and

(b) that it carries or will carry a preferential right to repayment of capital paid up where or not there is any other preferential right.

In view of the above inclusion of a right to get dividend, whether cumulative or non-cumulative is an inseparable element of preference shares and right to the repayment of capital on winding up.

Dividends can be paid to cumulative preference shareholders in winding up whilst assets of the company are being distributed, and they rank in priority to other shareholders both as regards dividend and capital. [Bombay Chlorine Products Ltd., In re (1965) 35 Comp Cas 282 (Bom)].

Where cumulative preference shareholders are entitled to share in surplus of assets on winding up, they are not entitled to preference for arrears of dividend unless there is specific provision for priority to such arrears.

Where the preference shareholders are entitled to participate in surplus assets on winding up, surplus assets will include undistributed profits on the date of liquidation. [Dimbula Valley (Ceylon) Tea Co. Ltd. v Laurie (1961) 31 Comp Cas 655 (Ch. D)].

Regards

CS Ajay Mishra

1 Like

Swagatam Khandelwal (Company Secretary) (107 Points)
Replied 18 February 2012

Issue of Preference Shares in a Pvt Co. doesnot require much formality. just check ur articles permit the same and the Company has Preference Shares in the Authorised Capital.

There is no maximum limit for issue of shares at premium. However same should be fixed keeping in view the networth and reputation of the Company.

Vishal Vora (Lawyer) (23 Points)
Replied 31 August 2012

Dear All,

I have a related question.

If redeemable preference shares are issued at premium, can the company redeem at face value? If yes what are the implications from income tax prospective on the company issuing and the company subscribing to such redeemable preference shares?

Thanks,

Vishal