by The minimum number of shares to be issued for redemption refers to the smallest quantity of new equity shares a company must issue to fund the redemption of preference shares when adequate distributable profits are unavailable. According to Section 55 of the Companies Act, 2013, the amount equal to the nominal value of preference shares redeemed must be replaced either from profits (transferred to the Capital Redemption Reserve) or through the issue of new shares. The calculation ensures the company’s capital remains intact, thereby safeguarding creditors’ interests and maintaining financial stability after redemption.
When a company decides to redeem preference shares, it must comply with the provisions of the Companies Act, 2013. If the redemption is not made entirely out of distributable profits, the company must issue fresh equity shares to raise funds for the redemption.
The minimum number of shares to be issued is calculated as:
Minimum Shares to Issue = [Nominal Value of Preference Shares to be Redeemed − Available Profits for Transfer to CRR] / Nominal Value per Equity Share
This ensures that the capital base is maintained and creditors’ interests are protected.
Minimum number of Shares to be issued for Redemption:
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 1 | Bank A/c Dr. | xxx | |
| To Share Application & Allotment A/c | xxx | ||
| (Being application money received on fresh issue of shares for redemption purposes) | |||
| 2 | Share Application & Allotment A/c Dr. | xxx | |
| To Share Capital A/c | xxx | ||
| (Being allotment of new shares made for redemption) | |||
| 3 | Preference Share Capital A/c Dr. | xxx | |
| Premium on Redemption of Preference Shares A/c Dr. (if any) | xxx | ||
| To Preference Shareholders A/c | xxx | ||
| (Being amount payable on redemption transferred to shareholders’ account) | |||
| 4 | Preference Shareholders A/c Dr. | xxx | |
| To Bank A/c | xxx | ||
| (Being payment made to preference shareholders on redemption) | |||
| 5 | Profit & Loss A/c / General Reserve A/c Dr. (for balance portion not covered by fresh issue) | xxx | |
| To Capital Redemption Reserve A/c | xxx | ||
| (Being transfer of profits to CRR for nominal value of redeemed shares not covered by fresh issue) |
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