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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Under the Companies Act, 2013, which statement about preference shares issued by an unlisted public company is correct?

Preference shares carry a preferential right to a fixed dividend and to repayment of capital on winding up ahead of equity shareholders. They do not vote on all resolutions, cannot be perpetual, and cannot be redeemed from capital freely.

  1. AThey carry a right to vote on every resolution placed before the general meeting
  2. BThey carry a preferential right to dividend and to repayment of capital on winding up over equity sharesCorrect
  3. CThey may be issued for perpetual duration with no redemption period
  4. DThey can be redeemed out of the company's capital without any restriction

Explanation

A preference share is one with a preferential right to dividend and to return of capital on winding up. Preference holders vote only on resolutions directly affecting their rights, not on all resolutions. Perpetual preference shares are not allowed, and redemption is allowed only out of profits or a fresh issue.

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