## Issue of Preference Shares – Section 55

### Core Rule

A company cannot issue irredeemable preference shares. All preference shares must be redeemable.

### Conditions for Issue of Redeemable Preference Shares

1. Authorised by AOA.

2. Special Resolution (SR) is passed.

3. Shares must be redeemable within 20 years from the date of issue.

Infrastructure projects exception: Shares may be issued for a period exceeding 20 years but not exceeding 30 years, provided the company redeems at least 10% of such shares annually from the 21st year onwards (or earlier, at the option of the shareholder).

4. No subsisting default in:

Redemption of preference shares; or
Payment of dividend on preference shares.

5. If shares are to be listed on a Recognised Stock Exchange (RSE), issue must comply with SEBI regulations.

6. Company shall maintain a Register of Members containing particulars of preference shareholders.

### Inability to Redeem – Further Issue (Proviso to Section 55)

If a company is unable to redeem preference shares or pay dividend on them, it may issue further redeemable preference shares equal to the unredeemed amount + unpaid dividend, to the holders of such unredeemed shares, subject to:

Consent of holders of 3/4th in value of such shares; and
NCLT approval.

> While granting approval, NCLT shall order redemption for shareholders who did not consent to the further issue. Unredeemed preference shares are then deemed to have been redeemed.

Worked example

### Example 1

Example: B Ltd., an infrastructure company, issues redeemable preference shares with a tenure of 25 years. Is this valid?

Solution: Yes — infrastructure companies may issue preference shares for up to 30 years. However, B Ltd. must redeem at least 10% of such shares annually from the 21st year, or earlier at the shareholder's option.

⚠️ Common exam mistakes

Believing irredeemable preference shares are permitted under any circumstances — they are not.
Forgetting the 30-year maximum cap on infrastructure preference shares.
Missing the dual requirement of 3/4th holders' consent AND NCLT approval for the further-issue route when redemption is not possible.
Overlooking the 10%-per-year mandatory redemption from the 21st year for infrastructure projects.

Bare-Act text Section 55 · Companies Act, 2013 · click to expand

Section 55(1): No company limited by shares shall, after the commencement of this Act, issue any preference shares which are irredeemable. Section 55(2): A company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue, subject to such conditions as may be prescribed.

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Issue of Preference Shares [Section 55]

Worked example

⚠️ Common exam mistakes