What is the procedure for redemption of preference shares?

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With regard to the procedure for redemption of shares, the first and the foremost point to be noted is only Redeemable Preference Shares can be redeemed. Equity shares cannot be redeemed at any cost. The procedure for redemption of shares are: 1. It must be authorised by the articles of association 2. The shares will be redeemable only if they are fully paid up 3. The shares may be redeemed out of profits of the company which otherwise would be available for dividends or out pf proceeds of new issue of shares made for the purpose of redeem shares. 4. If there is premium payable on redemption it must have provided out of profits or out of shares premium account before the shares are redeemed. 5.When shares are redeemed out of profits a sum equal to nominal amount of shares redeemed is to be transferred out of profits to the capital redemption reserve account. This amount should then be utilized for the purpose of redemption of redeemable preference shares. This reserve can be used to issue of fully paid bonus shares to the members of the company.

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Priya holds a masters in accounting and is well-versed with compliance and legal issues a small business may face.

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