Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share.
a. It carries Preferential rights in
respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is
payable on fixed figure or percent and this dividend must paid before the
holders of the equity shares can be paid dividend.
b. It also carries preferential right in
regard to payment of capital on winding up or otherwise. It means the amount
paid on preference share must be paid back to preference shareholders before
anything in paid to the equity shareholders. In other words, preference share
capital has priority both in repayment of dividend as well as capital.
As per Section 80 [(5A) of The Companies Act 1956
Notwithstanding anything contained in
this Act, no company limited by shares shall, after the commencement of the
Companies (Amendment) Act, 1996, issue any preference share which is
irredeemable or is redeemable after the expiry of a period of twenty years from
the date of its issue.
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