Redeemable shares

Redeemable shares
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Methods and techniques

Redeemable shares can be either:

  • preference shares or
  • issued as ordinary shares

but when they issued they buy back the shares at some future date or carry a right by the company to redeem. Because of buying back shares the capital of a company is reduced. There are strict rules connected with the issue of such shares. When the company is a public limited company so it is needed to have in its articles prior to authorization to issue redeemable shares. This provides the public whose acquisition shares to know whether a company might issue redeemable shares. The private limited company does not need to sign an authorization to issue redeemable shares in its articles, however, the company should prohibit or restrict the issuing of redeemable shares through a provision in its articles Redeemable shares might just be issued if the company either has other shares which cannot be redeemed. Therefore, the company limited by shares might never end up with no shareholders leaving just a Board of Directors, who are not shareholders only running the company. Redeemable shares might be issued as redeemable among certain dates or at a time to be determined by the Board of Directors or with a fixed date for redemption. Redeemable shares are useful during the needs of a company to raise short-term capital to expand its business and during flourishing the business is buys back the shares. Investors might be attracted by redeemable shares because they might know when the company will purchase them back and frequently dividends payable on them is rationally high[1].

The issues of redeemable shares[edit]

A company limited by guarantee or by shares with a share capital might if authorized by its articles, issue redeemable shares. They might be issued like redeemable at the option of the shareholder or the company. Redeemable shares might be issued merely if there are other shares in issue which cannot be redeemed. Therefore, there is not possible for a company to repurchase all its share capital and finish up under a board of directors with any members[2].

The redemption of redeemable shares[edit]

Redeemable shares might be not repurchased unless they are fully paid. The capital issued of a company is the creditors' buffer so it is this form, and not the paid-up capital, which has to be replaced. The terms of the repurchase must supply that the company should pay for the shares on repurchase and not, for example, as by creating a creditor at a later date. Creditors do not receive interest on outstanding debt, without special contractual provision, so that failure to pay on repurchase would give the company the resourcefulness of the share capital without cost[3].

Footnotes[edit]

  1. (L. Jones 2015)
  2. ( D.J. Keenan, S. Riches 2005)
  3. (D.J. Keenan, K. Smith 2006)

References[edit]

Author: Agnieszka Piwowarczyk