Redemption of Shares

Redemption refers to the repayment of the share capital to the shareholders, effectively "buying back" the shares and canceling them.

Relevant sections of the Companies Act, 2013

Section 55: This is the primary section governing the Issue and Redemption of Preference Shares. It mandates that no company limited by shares shall issue irredeemable preference shares and sets a maximum redemption period (generally 20 years).

Section 68: Governs the Buy-Back of Securities, which applies when a company seeks to "redeem" or purchase its own equity shares.

• Applicability: In modern company law, only Preference Shares can be redeemed; Equity Shares cannot be "redeemed" but may be "bought back" under strict regulatory conditions.

• Conditions:

  • Shares must be fully paid up.

  • Redemption must be out of profits (which would otherwise be available for dividends) or out of the proceeds of a fresh issue of shares made for the purpose of redemption.

  • If redeemed out of profits, an amount equal to the nominal value of the shares must be transferred to a Capital Redemption Reserve (CRR) account.