Section 55 of the Companies Act, 2013
Section 55 of the Companies Act, 2013 – Issue and Redemption of Preference Shares
Section 55 of the Companies Act, 2013 deals with the issue and redemption of preference shares by a company. Here is a summary of the key provisions:
🔹 1. Issue of Preference Shares
A company limited by shares may issue preference shares subject to the following conditions:
The issue must be authorized by the Articles of Association.
The issue must be authorized by a special resolution passed in the general meeting.
The company must also file with the Registrar a statement setting out:
The size of the issue and number of preference shares
The nature of such shares (redeemable)
The objectives of the issue
The manner of issue
Terms and conditions of issue, including dividend rate, voting rights, etc.
🔹 2. Redemption of Preference Shares
Preference shares can only be issued as redeemable shares.
Redemption Period: Must be within 20 years from the date of issue.
Exception: Companies may issue preference shares for infrastructure projects with a redemption period up to 30 years, subject to the condition that 10% of such shares are redeemed every year after the 20th year.
Source of Redemption: Redeemable preference shares must be redeemed:
Out of the profits of the company which would otherwise be available for dividend; or
Out of the proceeds of a fresh issue of shares made for the purpose of redemption.
If redeemed out of profits, a Capital Redemption Reserve (CRR) account must be created equal to the nominal value of shares redeemed.
🔹 3. No Issue of Irredeemable Preference Shares
A company cannot issue irredeemable preference shares.
🔹 4. Penalty for Default
If a company fails to comply with Section 55:
The company and every officer in default may be punishable with a fine up to ₹1 lakh.
In the case of a continuing default, a further fine of ₹5,000 per day during which the default continues.
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