JOSEPH DAVID (GM FINANCE) (286 Points)
29 September 2008whether a company can issue preference shares at 1% dividend rate redeemable after 2 years at par
(without any premium)to their group companies? Any minimum rate or maximum rate to be maintained for issue of redeemable preference shares
regards
joseph
saurabh
(CA)
(552 Points)
Replied 29 September 2008
no person of ordinary prudence wud subscribe to such 1% pref shares..
and thus it won't be fruitful to issue such pref shares.. as market wont react to it positively..
Rahul Gupta
(CA Final Student)
(1780 Points)
Replied 29 September 2008
Dear Joseph,
As per my knowledge of sec 80 of companies act 1956, there is no minimum or maximum rate prescribed relating to preference dividend.
I would like you to be more specific on what do you mean by group companies? Does it mean subsidiary co?
If yes then it would create a doubt in the minds of authorities as the rate is not justifiable as per market rates.
A doubt regarding the company employing it's own funds can be raised?
Correct me if i am mistaken or got confused.
Regards
Rahul Gupta
Lineesh James
(Company Secretary)
(30 Points)
Replied 30 September 2008
You can do so in compliance with Sec.372A.
ROC may interpret it as diversion or mismanagement of funds.
You can justify it as strategic investments( if they are in your associate Companies, Distributors, Suppliers etc)
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