Capital Redemption Reserve Account (Sections 55 & 69)

# Capital Redemption Reserve (CRR) Account [Sections 55 & 69]

## When Must CRR Be Created?

CRR must be created when:

1. A company buys back its own shares out of free reserves or securities premium (Section 69), OR

2. A company redeems preference shares out of profits (Section 55).

## Amount to Be Transferred

A sum equal to the nominal (face) value of the shares so bought back or redeemed must be transferred to CRR.

## Disclosure

The transfer details must be disclosed in the balance sheet.

## Permitted Use of CRR

CRR can be used only for one purpose: issuing fully paid bonus shares to members of the company.

> CRR cannot be used for paying dividend, writing off losses, or any other purpose.

## Why Does CRR Exist?

CRR acts as a capital maintenance device. When a company reduces its share capital through buy-back or redemption out of distributable profits, an equivalent amount is locked up as CRR so that the creditors' cushion (i.e., the company's capital base) is preserved.

## Quick Logic Summary