No company can issue irredeemable preference shares. Key Considerations: … The Issue of Preference Shares must be authorized by Articles of Association of the Company.
ISSUE AND REDEMPTION OF PREFERENCE SHARES
Company cannot issue irredeemable preference shares or redeemable preference shares with the redemption period beyond 20 years. Section 55 (1) states that no company limited by shares shall issue any preference shares which are irredeemable.
Under the Act, 2013, a company cannot issue irredeemable/ perpetual preference shares. However, under laws like Banking Regulation Act, 1949, a banking company can issue irredeemable/ perpetual preference shares.
Irredeemable preference shares are those preference shares which can only be redeemed at the time of liquidation of the company. Irredeemable preference shares become a permanent liability for the issuing company, in that they are obligated to pay dividend on these shares for perpetuity. …
Companies issue preferred stock as a way to obtain equity financing without sacrificing voting rights. This can also be a way to avoid a hostile takeover. A preference share is a crossover between bonds and common shares.
Preference Shares, as the name suggests are the shares in which shareholders get the profit of the company in form of dividends before Equity shareholders at a fixed dividend rate. … The decision to declare dividend on preference shares lies with the management, and it is not mandatory in case of loss.
As per Companies Act, 2013, an Indian Private Limited Company or Limited Company can issue preference shares, if authorized by the articles of association of the company. All preference shares issued by a company in India must be redeemable and should be redeemed within a period of 20 years from the date of its issue.
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. On this note, it is mandatory for every company issuing preference shares to redeem them within a period of 20 years from the date of issue.
The shareholders of redeemable preference shares of the company do not become creditors of the company in case their shares are not redeemed by the company at the appropriate time. They continue to be shareholders, no doubt subject to certain preferential rights.”
Preference shares are expensive source of finance as compared to debt. Since the risk is more in case of preference shares as compared to debentures, generally higher rate of dividend may have to be given compared to the rate of interest on debentures.