Minimum number of Shares to be issued for Redemption

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.

The objective is to determine the least number of shares that must be issued so the company complies with legal provisions while minimizing dilution of ownership.

1. Basic Principle

The nominal value of shares redeemed must be replaced either by:

• Profits transferred to CRR, or

• Proceeds from fresh issue of shares

Therefore,

Face Value of Shares Redeemed = Fresh Issue of Shares (Nominal Value) + Transfer to CRR

The company will try to issue the minimum shares possible so that CRR requirement becomes minimum.

2. When Shares are Issued at Par

If new shares are issued at face value (par), the entire amount received is treated as share capital.

Formula:

Minimum Fresh Issue (Nominal Value) = Face Value of Preference Shares Redeemed − Available Profits for CRR

After determining the total amount of fresh issue, number of shares is calculated:

Number of Shares = Amount of Fresh Issue ÷ Face Value per Share

3. When Shares are Issued at Premium

If shares are issued at a premium, the premium portion goes to Securities Premium Account and cannot be used to replace share capital. Only the face value portion of the fresh issue is considered for calculating minimum shares.

However, securities premium can be used to pay premium on redemption of preference shares.

Thus,

CRR requirement is reduced only by the nominal value of shares issued, not by the premium collected.

4. Adjustment for Premium on Redemption

If preference shares are redeemed at a premium:

• Premium payable must be provided from securities premium or profits

• It does not affect the calculation of minimum number of shares, which is based only on nominal capital.

5. Step-by-Step Calculation Procedure

• Find the face value of preference shares to be redeemed.

• Determine profits available for CRR (free reserves).

• Deduct available profits from nominal value of shares redeemed.

• Balance amount = minimum nominal value of fresh issue required.

• Divide by face value per share to find minimum number of shares.

6. Illustration (Conceptual)

Suppose a company redeems preference shares worth ₹1,00,000 and has profits available ₹40,000.

Required fresh issue (nominal value):

₹1,00,000 − ₹40,000 = ₹60,000

If face value per share = ₹10

Number of shares to be issued:

₹60,000 ÷ 10 = 6,000 shares

Thus, the company must issue at least 6,000 equity shares to legally redeem the preference shares.

Minimum number of Shares to be issued for Redemption: