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

Haritkisan Producer Company Limited, formed by mango growers in Ratnagiri, proposes to raise funds by issuing cumulative redeemable preference shares to its members. Under Section 378ZB of the Companies Act, 2013, what is the position?

A Producer Company cannot issue preference shares. Section 378ZB(1) says its share capital consists of equity shares only, so redeemable preference shares are not allowed, whatever the Articles say or whatever resolution the members pass.

  1. AIt cannot do so, because the share capital of a Producer Company consists of equity shares onlyCorrect
  2. BIt can do so, if the Articles authorise preference shares
  3. CIt can do so, with a special resolution of members
  4. DIt can do so, if the preference shares are issued only to members who supply produce

Explanation

Section 378ZB(1) states that the share capital of a Producer Company shall consist of equity shares only. Preference shares are therefore not permissible, and no authorisation in the Articles or by special resolution can change this. Limiting issue to supplying members does not alter the rule.

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