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CS Executive · Company Law and Practice · Members and Shareholders

Shree Textiles Ltd has equity shares and 8% preference shares. Dividend on the preference shares was paid regularly every year. A resolution is placed before the company to reduce its equity share capital. Under the Companies Act, 2013, what is the voting position of the preference shareholders on this resolution?

Preference shareholders can vote on this resolution because section 47(2) gives them a vote on any resolution for winding up or for repayment or reduction of equity or preference share capital, regardless of whether their dividend has been paid.

  1. AThey can vote, as the resolution is for repayment or reduction of share capitalCorrect
  2. BThey cannot vote, as preference shareholders vote only if dividend is in arrears
  3. CThey can vote only if the resolution is passed by postal ballot
  4. DThey can vote only if they hold at least ten per cent of the preference shares

Explanation

Section 47(2) lets preference shareholders vote on resolutions directly affecting their rights and on any resolution for winding up or for repayment or reduction of equity or preference share capital. So they vote here even though dividend is paid. The option tying the vote to arrears wrongly applies only the second proviso.

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