PURPOSE OF ISSUING REDEEMABLE PREFERENCE SHARES
A company may issue redeemable preference shares because of the following:
1 It is a proper way of raising finance in a dull primary market.
2. A company may face difficulty in raising share capital, as its shares are not traded on the stock exchange. Potential investors, hesitant in putting money into shares that cannot easily be sold, may be encouraged to invest if the shares are redeemable by the company.
3 The preference shares may be redeemed when there is a surplus of capital and the surplus funds cannot be utilised in the business for profitable use.
In India, the issue and redemption of preference shares is governed by Section 55 of the Companies Act, 2013.
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