ALL YOU NEED TO KNOW ABOUT PREFERENCE SHARES

ALL YOU HAVE TO KNOW ABOUT PREFERENCE SHARES

 

Meaning of Preference Shares:

 

Preference Shares are not defined in the Definition part of the Companies Act, 2013.

 

However, it has been defined in Section 43 of the Companies Act, 2013 as below:

 

·        Explanation (ii) to section 43 of the Companies Act, 2013 (‘the Act’) defines the term Preference Shares.

 

"Preference Share Capital", with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to—

 

ü  payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and

 

ü  repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;

 

·           Further, as per Explanation (iii) to section 43, when a certain class of shares has either of the following features, the same shall be deemed to be preference shares.

 

ü  in addition to the preferential right to receive dividend, the shareholders have a right to participate either fully or to a limited extent in the capital not having preferential treatment

 

ü  in addition to the preferential repayment of share capital in the event of winding up, the shareholders are entitled to participate either fully or to a limited extent in the surplus capital of the company available

 

Kinds of Preference shares:

 

·        There are Seven kinds of preference shares:

 

i.                    Redeemable Preference Shares:

 

Redeemable preference shares are those shares which are redeemed or repaid after the expiry of a stipulated period. 

ii.                  Cumulative Preference Shares

 

Preference dividend is payable if the company earns adequate profit. However, cumulative preference shares carry additional features which allow the preference shareholders to claim unpaid dividends of the years in which dividend could not be paid due to insufficient profit.

iii.                Non-cumulative Preference Shares

 

The holders of non-cumulative preference shares will get preference dividend if the company earns sufficient profit but they do not have the right to claim unpaid dividend which could not be paid due to insufficient profit.

 

iv.                 Participating Preference Shares

 

Participating preference shareholders are entitled to share the surplus profit of the company in addition to preference dividend.

 

v.                   Non-participating Preference Shares

 

Non-participating preference shareholders are not entitled to share surplus profit and surplus assets like participating preference shareholders.

 

vi.                 Convertible Preference Shares

 

The holders of convertible preference shares are given an option to convert whole or part of their holding into equity shares after a specific period of time.

 

vii.               Non-convertible Preference Shares

 

The holders of non-convertible preference shares do not have the option to convert their holding into equity shares i.e. they remain as preference share till their redemption.

 

Tenure of Preference shares:

 

       i.          A Company Limited by Shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue.

 

      ii.          A company may issue preference shares for a period exceeding twenty years but up to thirty years for infrastructure projects, subject to the redemption of 10% of shares on an annual basis at the option of such preferential shareholders from 21^st year onwards or earlier.

 

Methods of Issue of Preference Shares:

 

ü  Rights Issue under Section 62(1)(a) only to the existing Equity Shareholders; or

ü  ESOP Under Section 62(1)(b) specifically to the employees under a Scheme or

ü  Preferential Allotment under Section 62(1)(c) of the Companies Act, 2013 to any person subject to the adherence to Rule  13 of Companies (Share Capital and Debenture) Rule, 2014;

ü  Private Placement of Shares under section Section-42 read with the Rules made thereunder;

 

Conditions for issue of preference shares

 

Section 55 of the Act read with Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014 made there under, requires a Company to meet with following conditions:

 

ü  Company’s Articles should contain such clause allowing issue of Preference Shares

ü  Company’s Memorandum Should have the Preference Shares as a part of Authorised Capital

ü  The Company, at the time of such issue of Preference Shares, has no subsisting default in the redemption of Preference Shares issued either before or after the commencement of this Act or in payment of dividend due on any Preference Shares

ü  Obtain the prior approval of the Shareholders, by way of a Special Resolution

ü  Valuation Report to be taken to arrive at issue price 

 

Information to be given to the Shareholders in Explanatory Statement

ü  The size of the issue and number of preference shares to be issued and the nominal value of each share

ü  The nature of such shares i.e. cumulative or non-cumulative, participating or non-participating, convertible or non-convertible

ü  The objectives of the issue

ü  The manner of the issue

ü  The price at which such shares are proposed to be issued

ü  The relevant date and basis on which the price has been arrived at

ü  Details of the person who conducted the valuation

ü  The terms of issue, including terms and rate of dividend on each share, etc.

ü  The terms of redemption, including the tenure of redemption, redemption of shares at the premium and if the preference shares are convertible, the terms of conversion

ü  The manner and modes of redemption

ü  The current shareholding pattern of the company and post issue shareholding pattern

ü  The expected dilution in equity share capital upon conversion of preference shares

 

Particulars to be set out in the Resolution to be passed to issue Preference Shares

 

ü  The priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares

ü  The participation in surplus fund

ü  The participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid

ü  The payment of dividend on cumulative or non-cumulative basis

ü  The terms of conversion of preference shares into equity shares

ü  The voting rights

ü  The terms of redemption of preference shares

 

Redemption of preference shares

 

Meaning:

 

It is a process of repaying an obligation, usually at the prearranged amount. These shares are issued to the shareholders on terms that holders will at some future date be repaid the amount which they invested in the company.

 

The redemption date is the maturity date, which specifies when repayment takes place and is usually be mentioned in the agreement.

 

Conditions for Redemption:

 

ü  Fully paid-up preference shares can only be redeemed.

ü  Preference shares can be redeemed only out of the profits available for distribution to its shareholders or out of proceeds of fresh issue of Shares solely for the purpose of funding the redemption of the preference shares

ü  Where the redeemable preference shares are redeemed out of the profits available for distribution, a sum equivalent to the nominal amount of shares being redeemed shall be transferred to the Capital Redemption Reserve. The CRR shall be treated as the paid-up share capital of the company for all purposes and can also be utilized for bonus issue of shares

ü  In case of such class of companies as may be prescribed  under Sec 133 of the Companies Act, 2013 and whose financial statements comply with the accounting standards:

 

                       i.          Premium payable on redemption shall be provided out of the profits of the company before the shares are redeemed.

 

                                ii.               Premium payable on redemption of any preference shares issued on or before the commencement of 2013 Act, shall be provided out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed.

ü  In a case not falling under the class of Companies as mentioned above, the premium, if any, payable on redemption shall be provided for out of the profits of the company or out of the company's securities premium account, before such shares are redeemed.

 

Inability to redeem the redeemable Preference Shares

 

ü  Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed preference shares), it may, with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed:

 

ü  Tribunal shall order the company to immediately redeem the preference shares held by the shareholders dissenting to such arrangement.

 

ü  The issue of preference shares for purpose of redemption of unredeemed preference shares (along with the dividend) shall not be considered as an increase or, as the case may be, a reduction, in the share capital of the company

 

For more details you can contact us

 

email: dcsadvisors@gmail.com

Mobile: 9019421726

 

 

Author:

 

TEAM DCS ADVISORS LLP

 

Disclaimer:

The Views expressed are solely of the Author and the contents of this article is to share the Knowledge on subject matter. Expert advice should be sought for your specific circumstances.

 

 

NOTE ON ANNUAL FILING - FOR COMPANIES UNDER COMPANIES ACT 2013

NOTE ON ANNUAL FILING FOR COMPANIES

 

 

As an entrepreneur you might be thinking, what is Annual Filing for a Company? Why annual filing is important? Which are the forms we need to file? What are the documents required and when is the due date for Annual Filing? You can get answers for all your queries in this blog. Let us look into the questions one by one:

 

A.     What is Annual Filing for a Company?

 

Every company incorporated / registered in India, including private limited, limited company, one person company and section 8 company shall file financials and annual returns with ROC every year along with any other filings done during the year. This is a mandatory requirement even when there are no other filings or Company has no activities.

 

These filings can be done once in a year. Hence the terms are used as Annual Filing

 

B.     Why Annual Filing is Important?

 

For every Company Annual Filing will become important because of following Reasons:

1.            The major benefit of filing the ROC returns on time is that the company will be protected from the levy of penalty and punishments.

 

2.            For filing the ROC documents proper documents are required to be prepared by the company as a result company can determine its exact and accurate compliance position.

 

3.            The company will comply with the provisions of the Companies Act 2013 that will help in preventing the intervention of government in affairs of the company.

 

4.            The company who is complaint with the ROC filing procedure can make its better image and helps in improving its business image.

 

5.            When the Annual Filings are not done for consecutive 2 (Two) Financial Years, ROC can suo moto action to remove name from Register of Companies. Timely filing of Annual Accounts and Returns can avoid those Actions form ROC

 

6.            When the Annual Filings are not done for consecutive 3 (Three) Financial Years, Directors of such defaulting Company will become disqualified to Act as Directors in any other Company. Timely filing of Annual Accounts and Returns can avoid disqualification.

 

C.     Which are the forms we need to file? What are the documents required and when is the due date for Annual Filing?

 

A company is required to file three forms with ROC as a Part of Annual Filing.

 

1.      Form AOC-4: Form AOC-4 will contain details and annexure relating to Balance Sheet, Profit & Loss Account, Cash Flow Statement, Audit Report, Board’s Report with Annexures etc.,

 

Documents required for Form AOC-4:

i.                 Financials of the Company (Balance Sheet, Statement of Profit and Loss, Cash Flow Statement, Schedules along with notes to Accounts)

ii.                Board’s Report along with Annexures

iii.              Notice of Annual General Meeting – It is not a mandatory attachment. However, it is a prudent practice to attach it.

 

These are the basic documents required. Based on the size and turnover, listed and unlisted Companies, additional documents may be required.

 

Due date for Filing AOC-4 is 30 days from the date of Annual General meeting

 

2.      Form MGT-7 / MGT-7A: Form MGT-7/MGT-7A will contain the details of shareholding structure, change in directorship, Board and General Meeting details and details of the transfer of shares during the year if any etc.,

 

Documents required for Form MGT-7 / MGT-7A:

i.                 List of Shareholders

ii.                List of Directors

iii.              MGT-8 (Only if applicable)

 

These are the basic documents required. Based on the transactions, additional documents may be required.

 

Due date for Filing Form MGT-7/MGT-7A is 60 days from the date of Annual General Meeting

 

YOU MAY NOTE THAT THE MINISTRY OF CORPORATE AFFAIRS HAS EXTENDED THE DUE DATE FOR HOLDING AGM UP TO 30^TH NOVEMBER 2021. The notification can be accessed in below link:

https://www.mca.gov.in/bin/dms/getdocument?mds=tLqU1aBUgBji27vFDdJOWg%253D%253D&type=open

 

YOU MAY FURTHER NOTE THAT THE MINISTRY OF CORPORATE AFFAIRS HAS WAIVED OF THE ADDITIONAL FEES FOR FILING AOC-4 AND MGT-7/7A, UP TO 31.12.2021 FOR THE FILINGS RELATED TO THE FINANCIAL YEAR ENDED 31.03.2021 The notification can be accessed in below link:

https://www.mca.gov.in/bin/dms/getdocument?mds=5qMjdDesXhBDFgDSplqkmA%253D%253D&type=open

 

ALL COMPNAIES CONDUCTED AGM MUCH BEFORE THE DUE DATE, FOR THE FINANCIAL YEAR ENDED 31.03.2021, CAN FILE AOC-4 AND MGT-7/7A WITHOUT ADDITIONAL FEES UP TO 31.12.2021 IRRESPECTIVE OF THEIR DUE DATE. HOWEVER, THE ADDITIONAL FEES FOR THE DELAY AFTER 31.12.2021 WILL BE CALCULATED FROM THE ORIGINAL DUE DATE.

 

 

3.      Form ADT 1: This form will be filed for auditor appointment. It is required to be filed only when the Auditor is getting re-appointed and when the Auditor is getting changed.

Documents required for Form ADT-1:

i.                 AGM Resolution

ii.                Eligibility Certificate from Auditor

iii.              Appointment Letter from the Company

iv.              Acceptance Letter from the Auditor

 

Due date for filing Form ADT-1 is 15 days from the date of Annual General Meeting

 

Penalties for Non-compliance in company return filing:

 

Non-filing of Annual returns entails hefty penalties. Additional fees are Rs. 100 per day per form. These are over and above normal fees charged by MCA and there is no way to reduce the penalties.

 

For more details you can contact us

 

email: dcsadvisors@gmail.com

Mobile: 9019421726

 

 

Author:

 

TEAM DCS ADVISORS LLP

 

Disclaimer:

The Views expressed are solely of the Authour and the contents of this article is to share the Knowledge on subject matter. Expert advice should be sought for your specific circumstances.

FAQS ON FARMER PRODUCER COMPANIES

FAQS ON PRODUCER COMPANY

 

A.    What is Producer Company?

 

A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living, and ensure a good status of their available support, incomes and profitability.

 

Its main activities consists of production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the members or import of goods or services for their benefit etc.

 

B.    Which are the sections applicable for Producer Company?

 

Accordingly Chapter XXIA of Section 378A to 378ZU of the Companies Act, 2013 and The Producer Companies Rules, 2021 would applicable for Producer Company.

 

C.     What are the objects of the Producer Company?

 

1)    production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit: Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution;

 

2)    processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members;

 

3)    manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;

 

4)    providing education on the mutual assistance principles to its Members and others;

 

5)    rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members;

 

6)    generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce;

 

7)    insurance of producers or their primary produce;

 

8)    promoting techniques of mutuality and mutual assistance;

 

9)    welfare measures or facilities for the benefit of Members as may be decided by the Board;

 

10) any other activity, ancillary or incidental to any of the activities referred to provisions (1) to (9) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner;

 

11) financing of procurement, processing, marketing or other activities specified in provisions (1) to (10) which include extending of credit facilities or any other financial services to its Members.’’

 

D.    What are the requirements for Incorporation?

 

Combination of producers can incorporate a producer company:

 

1.     Ten or more producers (individuals); or

2.     Two or more producer institutions; or

3.     Combination of the above two (10+2).

 

It cannot become or deemed to become a public limited company.

 

E.     What are the provisions for formation of Producer Company and its registration?

 

1)    Any ten or more individuals, each of them being a producer or any two or more Producer Institutions, or a combination of ten or more individuals and Producer Institutions, desirous of forming a Producer Company having its objects specified in section 378B and otherwise complying with the requirements of this Chapter and the provisions of this Act in respect of registration, may form an incorporated company as a Producer Company under this Act.

 

2)    If the Registrar is satisfied that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto, he shall, within thirty days of the receipt of the documents required for registration, register the memorandum, the articles and other documents, if any, and issue a certificate of incorporation under this Act.

 

3)    A Producer Company so formed shall have the liability of its Members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them and be termed a company limited by shares.

 

4)    The Producer Company may reimburse to its promoters all other direct costs associated with the promotion and registration of the company including registration, legal fees, printing of a memorandum and articles and the payment thereof shall be subject to the approval at its first general meeting of the Members.

 

5)    On registration under section 378C (2) of the Companies Act, 2013, the Producer Company shall become a body corporate as if it is a private limited company to which the provisions contained in this Chapter apply, without, however, any limit to the number of Members thereof, and the Producer Company shall not, under any circumstance, whatsoever, become or be deemed to become a public limited company under this Act.

 

F.     Who can become the members of the company?

 

1.     In a producer company, only primary producers or producer organisations can become members.

2.     A Producer Company can act only through its members

3.     Members create the company

4.     Members can also wind up the company

5.     Members act through their General Meetings

 

G.    What are the documents required for the incorporation of the Producer Company?

 

1.     Producer Certificate / Farmer Certificate for each subscriber is a mandatory document to incorporate FPC.

 

2.     PAN of all subscribers

 

3.     Voter ID/Driving License/Passport of all subscribers

 

4.     Bank Statement / Phone Bill / Mobile bill not older than 2 months as address proof for all subscribers

 

5.     NOC from the owner of the property.(on plain paper and NOC from the person whose name mentioned on utility bill)

 

6.     Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent receipts);

 

7.     Copy of the utility bill (not older than two months)

 

8.     All the Subscribers should have Digital Signature.

 

H.    How many directors can be appointed?

 

Every Producer Company shall have at least 5 and not more than 15 directors.

 

[In case of an inter-State co-operative society incorporated as a Producer Company, such company may have more than fifteen directors for a period of one year from the date of its incorporation as a Producer Company.]

I.      Whether appointment of CEO is mandatory or not for the Producer Company?

 

Yes, Every Producer Company shall have a full time Chief Executive, by whatever name called, to be appointed by the Board from amongst persons other than Members.

 

J.      What are the conditions for the Share Capital?

 

1.     The share capital of a Producer Company shall consist of equity shares only.

 

2.     The shares held by a Member in a Producer Company, shall as far as may be, be in proportion to the patronage of that company.

 

K.    What are the provisions if the member becomes disqualified?

 

Where the Board of a Producer Company is satisfied that-

 

a)     any Member has ceased to be a primary producer/Farmer; or

b)    any Member has failed to retain his qualifications to be a Member as specified in articles,

 

The Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by the Board

 

The Board shall not direct such surrender of shares unless the Member has been served with a written notice and given an opportunity of being heard.

 

L.     How many board meeting should be conducted in a year?

 

A meeting of the Board shall be held not less than once in every three months and at least four such meetings shall be held in every year.

 

M.   How many prior days’ notice should be given for the board meeting?

 

1.     The Chief Executive shall give notice as aforesaid not less than seven days prior to the date of the meeting of the Board.

2.     Notice of every meeting of the Board of Directors shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.

3.     If the CEO fails to do so, he shall be liable to a penalty of five thousand rupees.

 

N.    What is the quorum required for conducting the board meeting?

 

The quorum for a meeting of the Board shall be one-third of the total strength of directors, subject to a minimum of three.

 

O.    What are the provisions for appointment of the secretary in the producer company?

 

Every Producer Company having an average annual turnover exceeding five crore rupees or such other amount as may be prescribed in each of three consecutive financial years shall have a whole-time secretary.

 

P.     What is the penalty imposed is the producer company fails to appoint the secretary?

 

The Company and every officer of the Company who is in default, shall be liable to a penalty of one hundred rupees for every day during which the default continues subject to a maximum of rupees one lakh.

In certain case, in any proceedings against a person in respect of a default, no penalty shall be imposed if it is shown that all reasonable efforts to comply with the provisions of Section 378X (1) of Companies Act, 2013 were taken or that the financial position of the Company was such that it was beyond its capacity to engage a whole-time secretary.

 

Critical points:

 

1.     The Member (s) should be a Farmer / Primary Producer

2.     Internal Audit by a Chartered Accountant is mandatory

3.     Statutory Auditor and Internal Auditor should be different

4.     Producer Company shall appoint one Chief Executive who shall not be a member or a Director of the Company.

5.     Producer Company having annual turnover of more than 5 crore shall appoint a whole time Company Secretary

6.     Maintaining General Reserve in the Company is mandatory