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

Sunrise Textiles Ltd, a company limited by shares, has issued 10,000 preference shares of Rs 100 each. Under Section 43 of the Companies Act, 2013, which feature makes a class of share capital 'preference share capital'?

Preference share capital is that part of issued capital which carries a preferential right to dividend, either a fixed amount or a fixed rate, and a preferential right to repayment of the paid-up amount on winding up or repayment of capital. Voting on every resolution is not the defining feature.

  1. AIt carries a preferential right to dividend at a fixed amount or fixed rate and to repayment of paid-up capital on winding up or repayment of capitalCorrect
  2. BIt carries a right to vote on every resolution placed before the company
  3. CIt can be redeemed only after twenty years from the date of issue
  4. DIt is issued only to promoters and directors of the company

Explanation

Under the explanation to Section 43, preference share capital is the part of issued capital that carries a preferential right to dividend (fixed amount or fixed rate) and to repayment of paid-up capital on winding up or repayment of capital. Voting on every resolution is a feature of equity shares, so option B is wrong. The twenty-year limit in Section 55 is a maximum redemption period, not a defining feature.

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