Continuing further from the last blog where we began our discussion on the types of preference shares, in this blog, we would talk about Redeemable and Convertible class of Preference Shares.
Redeemable and Non Redeemable Preference Shares
Redeemable Preference shares as the name indicates are repayable after the period of holding stated in the share certificate - A premium may be paid at the time of redemption. A Non-redeemable Preference Shares cannot be redeemable except at the time of liquidation of the company. The preference share holder will on redemption, receive the par value of the share, the redemption premium, the dividends in arrears, and the proportionate dividend for the current year.
By the statutory requirement after 1988, companies are having been prohibited from issuing Non-redeemable preference shares or redeemable shares after eight years from the date of its issuance. The law also mandates that, the company creates a Capital Redemption Reserve, except when the redemption is made out of the proceeds of a fresh issue of share capital.
A redemption preference share is useful for the company issuing it, in that the company can pay back the preference share capital when it has surplus cash or could substitute it with a lower interest debt.
Convertible and Non-Convertible preference shares:
Convertible Preferences hares can be converted into equity at a pre-determined ration. Non-convertible preference shares will always remain as preferences hares.
Read in Kannada:
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