Discuss the provisions of Section 55 of the Companies Act, 2013.
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Detailed Solution & Explanation
As per sec. 55 of Companies Act, 2013, a company limited by shares may, if so, authorised
by its Articles, issue preference shares which, are liable to be redeemed within a period,
normally not exceeding 20 years from the date of their issue subject to such conditions as
may be prescribed.
Provided further that—
(a) No such shares can be redeemed except out of the profit of the company which would
otherwise be available for dividend or out of proceeds of fresh issue of shares made
for the purpose of redemption;
(b) No such shares can be redeemed unless they are fully paid;
(c) In case of such class of companies, as may be prescribed and whose financial
statements comply with the accounting standards prescribed for such class of
companies under Section 133, the premium, if any, payable on redemption shall be
provided for out of the profits of the company, before the shares are redeemed;
(d) Where any such shares are proposed to be redeemed out of the profits of the
company, there shall, out of the divisible profits, (ie., the profits which would
otherwise have been available for dividends), be transferred to a reserve account
called Capital Redemption Reserve Account, a sum equal to the nominal amount of
the shares redeemed;
The utilisation of CRR Account is further restricted to issuance of fully paid- up bonus
shares only.
About This Chapter: Partnership & Companies
Paper
Paper 1: Accounting
Weightage
15-20%
Key Topics
Admission, Retirement, Death, Shares, Debentures
This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.
View Official ICAI SyllabusExam Strategy Tip
This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.
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