# Redemption of Preference Shares (Section 55)
## Key Rule: No Irredeemable Preference Shares
A company cannot issue irredeemable preference shares. All preference shares must be redeemable within a maximum period.
## Sources of Redemption
Preference shares can be redeemed only out of:
1. Profits of the company which would otherwise be available for dividend, or
2. Proceeds of a fresh issue of shares (equity or preference) made specifically for the purpose of redemption.
> The shares to be redeemed must be fully paid-up.
## Source of Premium Payable on Redemption
The treatment depends on the type of company:
### Prescribed Companies (whose FS comply with AS u/s 133)
Premium on redemption must be provided only out of profits of the company.
### Other Companies
Premium on redemption can be provided out of:
- Profits of the company, OR
- Securities premium account.
## Quick Summary Table
| Element | Source Permitted |
|---|---|
| Face value redemption | Profits OR Fresh issue proceeds |
| Premium (prescribed cos.) | Profits only |
| Premium (other cos.) | Profits OR Securities Premium |
## Linked Provision: CRR
If preference shares are redeemed out of profits, a sum equal to the nominal value of the shares redeemed must be transferred to the Capital Redemption Reserve (CRR).