Preference Shares Issuance & Redemption

Preference Shares

Preference shares are shares may be issued by a company as a sperate class of shares with dividends that are paid out to shareholders before ordinary share dividends are issued. If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before ordinary shareholders.

Most preference shares have a fixed dividend, while ordinary shares generally do not. Preference shareholders also typically do not hold any voting rights, but ordinary shareholders do.

Issuance of Preference Shares:

Companies issue preference shares to raise capital while offering investors fixed dividends and preferential rights over equity shareholders in terms of dividend distribution and liquidation proceeds. These shares can be cumulative, non-cumulative, convertible, non-convertible, redeemable, or irredeemable, depending on the terms set by the company. The issuance process typically requires board and shareholder approval, compliance with regulatory norms, and proper documentation, including the offering terms and conditions.

Redemption of Preference Shares:

Redeemable preference shares are redeemed by the company after a specified period or at the discretion of the company, subject to statutory provisions. Redemption can be done out of profits or fresh issue of shares, ensuring that the company’s financial position remains stable. Legal and regulatory compliance, such as ensuring solvency and maintaining required reserves, must be adhered to before proceeding with the redemption.

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