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CSEET · Business Laws and Management · Elements of Company Law

Meridian Ltd has issued preference shares carrying a fixed 9% dividend and a preferential right to repayment of capital on winding up. The articles also let these shares share, to a limited extent, in dividends along with equity shares beyond the fixed rate, and in surplus after all capital is repaid. How is this capital treated under the Companies Act, 2013?

The capital remains preference share capital. The Act deems capital to be preference capital even if, in addition to the fixed dividend and preferential repayment, it participates fully or to a limited extent in dividends or in surplus after all capital is repaid.

  1. AAs equity share capital, because it participates with equity
  2. BAs preference share capital, despite the participation rightsCorrect
  3. CAs a separate third kind of capital outside Section 43
  4. DAs equity capital with differential rights

Explanation

The Explanation to Section 43 deems capital to be preference capital even if, besides its fixed dividend and preferential repayment rights, it participates fully or to a limited extent in dividends or in surplus after capital is repaid. Hence participation does not convert it to equity.

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