Preference shares: No longer preferable

By Priti Suri, PSA
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The Companies Act, 1956 allows an Indian company to issue either equity or preferential shares. The latter get preferential treatment over equity shares.

Priti Suri, PSA, Preference shares
Priti Suri
Proprietor
PSA

Preference shareholders are entitled to a fixed rate of dividend to be paid from the profits of the company and receive their capital contribution if an investee company goes into liquidation.

Preference shares have to be redeemed by the company either by paying off the full amount to the shareholders or by issuing equity shares within 20 years from the date of issue.

Due to these inherent rights, venture capitalists prefer to subscribe to preference shares.

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Priti Suri is the proprietor of PSA.

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PSA

Legal Counsellors

14A & 14B Hansalaya, 15 Barakhamba Road

New Delhi – 110001, India

Tel: +91 11 4350 0500

Fax: +91 11 4350 0502

www.psalegal.com

Email: p.suri@psalegal.com

 

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