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

Mahalaxmi Foods Ltd has issued preference shares of a particular class. The dividend on this class has not been paid for the last three years. At a general meeting, a resolution to approve a related-party contract unrelated to preference rights is placed. What is the voting position of this class of preference shareholders?

They may vote on all resolutions. Normally preference shareholders vote only on matters directly affecting their rights, winding up or capital repayment or reduction, but if the dividend on a class is unpaid for two years or more, that class gains the right to vote on all resolutions.

  1. AThey may vote on all resolutions placed before the companyCorrect
  2. BThey may vote only on resolutions directly affecting their preference rights
  3. CThey may vote only on winding up resolutions
  4. DThey have no vote until the shares are redeemed

Explanation

Under section 47(2), preference shareholders ordinarily vote only on resolutions directly affecting their rights, winding up, or repayment or reduction of capital. The second proviso gives that class a right to vote on all resolutions if the dividend has not been paid for two years or more. Three years of non-payment satisfies this, so the restricted-vote option is wrong.

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