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Redemption of preference shares II

Redemption of preference shares II. The general process. Statutory requirements. Sect 61 Co Act 1965: …redemption not taken as reducing the amount of authorised capital …redeemed …out of profits otherwise available for dividends out of proceeds of fresh issue of shares….

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Redemption of preference shares II

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  1. Redemption of preference shares II The general process

  2. Statutory requirements Sect 61 Co Act 1965: • …redemption not taken as reducing the amount of authorised capital • …redeemed • …out of profits otherwise available for dividends • out of proceeds of fresh issue of shares…

  3. Statutory requirements Sect 61 Co Act 1965: (contd.) • if other than (b)ii, an amout out of profits otherwise available for dividends to a “capital redemption reserve” {CRR} • premium on redemption if any, payable out of profits or share premium account • shares fully paid up before redemption

  4. Maintaining capital structure Issued and paid-up capital RM Ordinary shares of RM1 each 100,000 Preference shares of RM1 each 100,000 ********************************** Issued and paid-up capital RM Ordinary shares of RM1 each 100,000 Preference shares of RM1 each -

  5. Sect 61: b(i) Issued and paid-up capital RM Ordinary shares of RM1 each 200,000 Preference shares of RM1 each - ********************************** Sect 61:b(ii), c Issued and paid-up capital RM Ordinary shares of RM1 each 100,000 Preference shares of RM1 each - Capital Redemption Reserve 100,000

  6. Financing the redemption Options: • Issue of new ordinary shares [for redemption purpose] at least equal to the nominal value of the shares redeemed. • Transfer profits otherwise available for dividends to “capital redemption reserve”at least equal to the nominal value of the shares redeemed. • Combination of 1 and 2,where the total should at least equal to the nominal value of the shares redeemed.

  7. The general process • Transfer of shares to Redemption of Preference Shares account – close the capital account. Dt. Preference Shares a/c Cr. Redemption of preference shares a/c 2. Make payment to shareholders Dt. Redemption of preference shares a/c Cr. Bank a/c

  8. The general process • Show how the redemption is financed nominal shares: Dt. Bank a/c Cr. OSC a/c OR profits: Dt. Ret. profits/earnings a/c Cr. CRR a/c OR

  9. both: Dt. Bank a/c Cr. OSC a/c AND Dt. Ret. earnings/profits a/c Cr. CRR a/c premium Dt. Share premium a/c Cr. Ret. Profits a/c

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