Issue of Preference Shares In India

Issue of Preference Shares

Preference shares, which are issued by companies seeking to raise capital, combine the characteristics of debt and equity investments, and are consequently considered to be hybrid securities. Preference shareholders experience both advantages and disadvantages. On the upside, they collect dividend payments before common stock shareholders receive such income. But on the downside, they do not enjoy the voting rights that common shareholders typically do. A company may issue preference shares for a period exceeding 20 (Twenty) years for infrastructure projects. Subject to the redemption of a minimum 10% of such preference shares per year from the 21 (twenty-first) year onward or earlier, on a proportionate basis, at the option of preference shareholder.

The procedure for the issue of Preference share is given under Section-62 of the Companies Act 2013. It is significant to highlight that issue of share can be in three modes:

1. Right issue of shares [Section- 62(1) (a)]
2. Preferential allotment of shares. [Section- 62(3) (c) and Section-42]
3. Private Placement of shares. [Section-42)