CHECKLIST FOR ISSUE OF PREFERENCE SHARES
A. Check
whether nominal capital of company divides into Equity Share Capital and
Preference Share Capital.
B.
Check whether there is Provision in Article of Association of
company regarding issue of Preference shares.
C.
At the time of issue of Preference shares no subsisting default in
the redemption of preference shares issued. (Rule-9(1)(b) of The Companies (Share Capital & Debentures) Rules, 2014.
D. At the time
of issue of Preference shares no subsisting default in payment of dividend due
on any preference share. (Rule-9(1)(b) of The Companies (Share Capital & Debentures) Rules, 2014
IMPORTANT POINT TO BE KEPT IN
MIND WHILE ALLOTMENT OF PREFERENCE SHARES
·
Make Allotment within 60 days of receiving of Application Money;
otherwise it will treat as deposits as per deposits rules.
·
Issue Share Certificate under form-SH-1
·
Make Entry of allotment of Preference Share under Register of
Member maintained in Form No. MGT-1. {As per Section-88 and the Companies
(Management and administration) Rules, 2014.
CONDITIONS FOR ISSUE OF PREFERENCE SHARES:
A.
The Issue of Preference Shares has been authorized by Passing of Special
Resolution in the General Meeting of company.
B.
Fulfill all the requirement mention in the checks above.
C.
Company requires maintaining a register under Section- 88 (Register of Member)
shall contain the particulars in respect of such preference share holder(s).
D.
Things to be mentioned in the Special Resolution passed for the purpose of
Issue of Preference Shares.
a)
The priority with respect to payment of dividend or repayment of capital
vis-à-vis equity shares.
b)
The participation in the surplus fund.
c)
The participation in surplus assets and profit, on winding-up.
d)
The payment of dividend on cumulative or non-cumulative basis.
e)
The conversion of preference shares into equity shares.
f)
The voting rights;
g)
The redemption of preference shares.
Important
Condition on Preference Shares:
A. As per
section 55 of the Act, a company can issue only redeemable preference shares
i.e. a company is not allowed to issue irredeemable preference shares.
B. It is
mandatory for every company issuing preference shares to redeem it within a
period of 20 years from the date of issue.
C. A company
may issue preference shares for a period exceeding 20 (Twenty) years for
infrastructure projects. Subject to Redemption of a Minimum 10% of such
preference shares per year from the 21 (twenty first) year onward or earlier,
on proportionate basis, at the option of preference share holder. (As per rule-
10 of The Companies (Share Capital and Debentures) Rules, 2014.
Issuance of
preference shares, Explanatory Statement should mention following information: (Rule
9 of Companies (Share Capital and Debentures) Rules, 2014)
a)
Size of the issue and number of preference shares to be issued and nominal
value of each share;
b)
Nature of such shares i.e. cumulative or non – cumulative, participating or non
– participating, convertible or non – convertible.
c)
Objectives of the issue;
d)
Manner of issue of shares;
e)
Price at which such shares are proposed to be issued;
f)
Basis on which the price has been arrived at;
g)
Terms of issue, including terms and rate of dividend on each share, etc.;
h)
Terms of redemption, including the tenure of redemption, redemption of shares
at premium and if the preference shares are convertible, the terms of
conversion;
i)
Manner and modes of redemption;
j)
Current shareholding pattern of the company;
k)
Expected dilution in equity share capital upon conversion of preference shares.
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