CLL_Art1887 - Taxpublishers.in

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The Tax Publishers Share Capital--Conversion of Share Capital Conversion of Unissued Preference Capital to equity capital--Procedure Involved CA. Deepak Harwani In the present article, the learned author discusses about the applicable section governing issuance and redemption of preference shares, procedure and regulatory filings pertaining to the issue of share capital and conversion of compulsory convertible preference shares and the related filing forms pertaining to that conversion. 1. Introduction Section 55 of the Companies Act, 2013 governs the issuance and redemption of preference shares by a company. It includes the following rules-: 1. Redemption Period (General Rule): A company may issue preference shares that must be redeemed within a maximum period of 20 years from the date of their issue. This means preference shares cannot be issued as perpetual shares; they must have a fixed redemption timeline. 2. Exception - Infrastructure Companies: Companies engaged in the setting up and dealing of infrastructure projects are given a special relaxation. Such companies can issue preference shares for a period up to 30 years instead of 20 years. 3. Mandatory Partial Redemption (for 30-year shares): For infrastructure companies using the 30-year redemption period, the law requires partial redemption beginning from the 21st year, onwards, Specifically, they must redeem at least 10% of the total preference shares each year from the 21st year onwards or earlier, on a proportionate basis, if the preference shareholders so choose. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Share Capital--Conversion of Share Capital

Conversion of Unissued Preference Capital to equity capital--Procedure Involved

CA. Deepak Harwani

In the present article, the learned author discusses about the applicable section governing issuance and redemption of preference shares, procedure and regulatory filings pertaining to the issue of share capital and conversion of compulsory convertible preference shares and the related filing forms pertaining to that conversion.

1. Introduction

Section 55 of the Companies Act, 2013 governs the issuance and redemption of preference shares by a company. It includes the following rules-:

1. Redemption Period (General Rule): A company may issue preference shares that must be redeemed within a maximum period of 20 years from the date of their issue. This means preference shares cannot be issued as perpetual shares; they must have a fixed redemption timeline.

2. Exception - Infrastructure Companies: Companies engaged in the setting up and dealing of infrastructure projects are given a special relaxation. Such companies can issue preference shares for a period up to 30 years instead of 20 years.

3. Mandatory Partial Redemption (for 30-year shares): For infrastructure companies using the 30-year redemption period, the law requires partial redemption beginning from the 21st year, onwards, Specifically, they must redeem at least 10% of the total preference shares each year from the 21st year onwards or earlier, on a proportionate basis, if the preference shareholders so choose.