# Redemption of Preference Shares (Section 55)
## Sources from which Preference Shares can be Redeemed
A company can redeem preference shares only out of:
1. Profits of the company which would otherwise be available for dividend, OR
2. Proceeds of a fresh issue of shares made for the purpose of such redemption.
## Key Conditions
| Condition | Requirement |
|---|---|
| Status of shares | Shares to be redeemed must be fully paid-up |
| Redemption out of profits | Equal nominal amount must be transferred to Capital Redemption Reserve (CRR) |
| Sanctity of CRR | CRR has the same sanctity as paid-up share capital |
| Reduction of CRR | Can be reduced only in the manner paid-up share capital is reduced under the Act |
## Capital Redemption Reserve (CRR)
- Created only when redemption is out of profits (not from fresh issue proceeds).
- Amount = nominal value of shares redeemed.
- Utilisation of CRR: Can be applied in paying up unissued shares of the company to be issued to members as fully paid bonus shares.
## Premium Payable on Redemption
### For prescribed class of companies complying with AS under Sec 133:
- Premium on redemption shall be provided out of profits of the company before redemption.
- For preference shares issued on or before commencement of the Act: premium can be provided out of profits OR securities premium account.
### For other companies:
- Premium shall be provided out of profits OR securities premium account before redemption.