Page 126 - DCOM106_COMPANY_LAW

Unit 9: Share and Share Capital

4. The shares may only be redeemed: (a) out of profits of the company which would otherwise Notes
be available for dividend, or (b) out of the proceeds of a new issue of shares - not necessarily
of redeemable preference shares made for the purpose of redemption;
5. If there is a premium payable on redemption, it must have been provided out of profits or
out of the securities premium account before the shares are redeemed;

6. Where the shares are redeemed out of profits, a sum equal to the nominal amount of the
shares redeemed is to be transferred out of profits to the “Capital Redemption Reserve
Account.”
The redeemable preference shares can be redeemed by the company either at a fixed date, or
after a certain period of time, or at the option of the company. But redemption of such shares
shall not be taken as reducing the nominal capital of the company.

9.2.5 Irredeemable Preference Shares

No company limited by shares can issue any preference shares which are irredeemable or are
redeemable after the expiry of ten years from the date of issue. Also, once the company has
redeemed the shares, or it is about to redeem them, it may issue new shares up to the same
nominal amount and it will be presumed that the preference shares were never redeemed.
In such a situation, the company’s capital is not deemed to be increased and, therefore, no stamp
duty is to be paid. This privilege is available only if the redemption takes place within one
month after the making of the fresh issue [s.80 (4)].
Non-compliance with the provisions of s.80 will render the company and every officer of the
company who is in default liable to a fine up to 10,000.

9.2.6 Equity Share

‘Equity share’ means a share which is not a preference share (s.85). The rate of dividend is not
fixed. The Board of directors recommends the rate of dividend which is then declared by the
members at the AGM. Before recommending dividend on equity shares, the BOD have to comply
with the provisions of law as regards depreciation, transfer of a minimum amount to
reserves, etc.
The holders of equity shares have voting rights in proportion to the paid-up equity capital of the
company [s.87(1)].
The Companies (Amendment) Act, 2000, substituted a new section for s.86. It provides that the
share capital of a company limited by shares shall be of two kinds only, namely:
1. Equity Share Capital
(i) With voting rights or
(ii) With differential rights as to dividend, voting or otherwise in accordance with such
rules and subject to such conditions as may be prescribed; and
2. Preference Share Capital.
Prior to the amendment to the Companies Act in 2000, public companies were not allowed to
issue equity shares with differential rights.
Thus, companies are now allowed to issue non-voting equity shares. However, these shares can
be issued subject to the rules and conditions prescribed by the Department of Companies Affairs.

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