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Issue of preference shares

Balwant Rawat (Management Trainee) (153 Points)

04 March 2016

Company has never issue preference shares and now the company going to issue prefernce shares on right basis. can the company do so???

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8 Replies

prakash (Company Secretary) (1352 Points)
Replied 04 March 2016

For Issue and redemption of preference shares, Company has to follow procedure stipulated under section 55 of CA, 2013 and Rules 9 and 10 of The Companies (Share Capital and Debentures) Rules 2014.

I opine, Company cannot issue preference shares on right basis, it have to be done by Private Placement as per section 42 and 62 (1) (c) of CA, 2013 and rules prescribed thereunder.

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Balwant Rawat (Management Trainee) (153 Points)
Replied 04 March 2016

But as per

Sec 62 (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered :

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer.

here the further shares includes both equity shares and pereference as well.

ACS Parul Rawat (Entrepreneur | Corporate Law Advisor | Lawyer in Making | AIR-8) (218 Points)
Replied 04 March 2016

Hi Ravi,

In order to issue Prefernce shares on Right Basis, you have to first increase the Authorised (Preference) Share Capital of the company by filing SH7.

Once the company have Authorised Capital in Preference shares it can issue shares on right basis to the shareholders.

Balwant Rawat (Management Trainee) (153 Points)
Replied 05 March 2016

Hello Parul,

Thanks for Your prompt reply, Company already have enough Authorised Share Capital to Issue Preference Share Capital on Right Basis. Plz Confirm me, eligibility of company to issue preference share on right issue to existing Equity Shareholders although the company neither has any pereference share capital nor any pereference sharehoder.

ACS Parul Rawat (Entrepreneur | Corporate Law Advisor | Lawyer in Making | AIR-8) (218 Points)
Replied 05 March 2016

Mr. Ravi,

The Company should have Authorised (Preference) share capital to issue preference shares on right basis. As per Section 62, a Company can increase the subscribed capital by the issue of further shares and such shares shall be offered to persons who at the date of the offer are holders of that class of shares.

And if the Company does not have authorised capital in preference shares then how can they further issue such shares.

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Balwant Rawat (Management Trainee) (153 Points)
Replied 05 March 2016

Got it, it means company has to increase authorised pereference share capital then company can eligible to issue pereference shares on right basis.

Thank you :)

ACS Parul Rawat (Entrepreneur | Corporate Law Advisor | Lawyer in Making | AIR-8) (218 Points)
Replied 05 March 2016

Yes! you got my point now! :)

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 05 March 2016

I endorse the views of Prakash ji...

Originally posted by : prakash
	For Issue and redemption of preference shares, Company has to follow procedure stipulated under section 55 of CA, 2013 and Rules 9 and 10 of The Companies (Share Capital and Debentures) Rules 2014. I opine, Company cannot issue preference shares on right basis, it have to be done by Private Placement as per section 42 and 62 (1) (c) of CA, 2013 and rules prescribed thereunder.