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Pankaj Arora (Learner) (3134 Points)

01 October 2011

What is the meaning of non-cimulative in non-cimulative preference shares?

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CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 01 October 2011

It means if a company fails to pay dividend on preference share for a year shareholder will not have any right to claim it in future.It is just the opposite of cumulative preference share where shareholders are entitled to receive a fixed dividend each accounting year.If then dont receive dividend in a year it cumulates and shareholders are entitled to receive it in future.

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Sumit Jaiswal (Company Secretary) (818 Points)
Replied 01 October 2011

In case no dividend is declared in any year because of absence of profit, the non-cumulative preference shareholders get nothing nor can they claim unpaid dividend in the subsequent years or years in respect of that year. In the case of cumulative preferenceshareholders, dividends which are not paid in any year are accumulated and are paid when the profits are available.

Basically, non-cumulative means the same thing that dividend would not be accumulated. I hope it is clear now.

Pankaj Arora (Learner) (3134 Points)
Replied 01 October 2011

Thanks Richa Ma’m I have one more query if could help in our pvt. Ltd. Company we took loan from our two directors of Rs. 1 crore and company’s authorized share capital currently is 80 Lac can we convert director loan into equity after increasing authorized share capital. If we can do so may I know the procedure for the same?

Pankaj Arora (Learner) (3134 Points)
Replied 01 October 2011

Originally posted by : CA RICHA BOTHRA
	It means if a company fails to pay dividend on preference share for a year shareholder will not have any right to claim it in future.It is just the opposite of cumulative preference share where shareholders are entitled to receive a fixed dividend each accounting year.If then dont receive dividend in a year it cumulates and shareholders are entitled to receive it in future.

But Ma’m if someone have non-cumulative preference share than he will not be entitle of any dividend by company. So what he will get from company in return of their investment?

CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 01 October 2011

IF the loan is bonafide then the company can issue shares in lieu of loan .It will be treated as allotment of shares for cash only.But before allotment of shares you have to increase the authorised capital of the Company by filing form 5 .

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CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 01 October 2011

They are entitled to receive dividend each year. Only when company do not have sufficient profit in a year and the company is not paying dividend then they cant claim for it in future.

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 01 October 2011

Procedure

1. First increase the auth capital by passing OR in GM u/s 94 and by filing form 5 with ROC. Effective date of AC increase date would be the date of passing OR in GM.

2. After that you may convert the loan into equity by passing allotment resolution in board meeting and by filing form 2 with ROC.

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CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114225 Points)
Replied 01 October 2011

Cumulative or Non-cumulative : A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of each year. In case no dividend thereon is declared in any year because of absence of profit, the holders of preference shares get nothing nor can they claim unpaid dividend in the subsequent year or years in respect of that year. Cumulative preference shares however give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution . In this case dividends which are not paid in any year are accumulated and are paid out when the profits are available.

Both types of Preference shares are entitled to divident but only in case od Cumulative preference share there is Right to Accumulation of Dividend and Not in Case of Non Cumulative Preference Shares.