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CS Executive · Company Law and Practice · Share and Share Capital - Concepts

Ganga Agro Producer Company Ltd is registered as a Producer Company. Its board proposes to issue redeemable preference shares to raise funds. Based on the share capital provision applicable to Producer Companies in the Act, what is the position?

The proposal is not permissible. Section 378ZB states that the share capital of a Producer Company shall consist of equity shares only, so preference shares cannot be issued. The patronage-based holding rule is a separate requirement and does not authorise preference capital.

  1. AAllowed, since every company may issue both kinds of shares
  2. BNot allowed, since share capital of a Producer Company consists of equity shares onlyCorrect
  3. CAllowed only if held in proportion to patronage
  4. DNot allowed, since Producer Companies cannot have any share capital

Explanation

Section 378ZB provides that the share capital of a Producer Company shall consist of equity shares only. So preference shares cannot be issued, unlike the general two-kind rule in Section 43. The patronage rule concerns the proportion of shares held by members, not permission for preference shares, and Producer Companies do have share capital.

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