Redemption of preference shares refers to the process of repaying the capital of preference shares to the shareholders. Redeemable preference shares are those shares where the issuer of the share has the right to redeem the shares within 20 years of the issuance at the predetermined price mentioned in the prospectus. The prices at which companies can repurchase these redeemable shares are already decided during the issuance of those shares. The process of redemption of preference shares helps the company in adjusting the financial structure. The redemption of these shares takes place at a fixed time or on the happening of a particular event, at the companys option, or at the shareholders option. The Companies Act, 2013 governs the issue and redemption of preference shares. The conditions for redemption of preference shares include that the shares to be redeemed must be fully paid up, redemption can be effected only out of profits which would otherwise have been available for dividend, or out of the proceeds of a fresh issue of shares made for the purpose of redemption, and the premium payable, if any, on the redemption shall be provided for out of the company’s securities premium account or out of the profits of the company. The advantages of redeemable preference shares are that they allow the company to choose whether to repurchase or redeem shares depending on the market condition, and it is a way of paying the existing shareholders, very similar to paying dividends to the shareholders.

In summary, redemption of preference shares is the process of repaying the capital of preference shares to the shareholders. Redeemable preference shares are those shares where the issuer of the share has the right to redeem the shares within 20 years of the issuance at the predetermined price mentioned in the prospectus. The process of redemption of preference shares helps the company in adjusting the financial structure. The Companies Act, 2013 governs the issue and redemption of preference shares. The conditions for redemption of preference shares include that the shares to be redeemed must be fully paid up, redemption can be effected only out of profits which would otherwise have been available for dividend, or out of the proceeds of a fresh issue of shares made for the purpose of redemption, and the premium payable, if any, on the redemption shall be provided for out of the company’s securities premium account or out of the profits of the company. The advantages of redeemable preference shares are that they allow the company to choose whether to repurchase or redeem shares depending on the market condition, and it is a way of paying the existing shareholders, very similar to paying dividends to the shareholders.