Redemption of Shares:

Section 60 (1) empowers a company limited by shares to issue preference shares that are, or may be at the option of the company are to be liable, to be redeemed, if the articles authorise such an issue. It however, provides that -

a)      no such shares shall be redeemed except out of the profits of the company which would otherwise be available for dividend and, or just out of the proceeds of a fresh issue of shares made for the purposes of the redemption;

b)      however no such shares shall be redeemed unless they are fully paid;

c)      the premium, if any, payable on redemption must have been provided for out of the profits of the company or out of the company's share premium account before the shares are redeemed;

d)      where any such shares are redeemed otherwise than out of the proceeds of a fresh issue so therefore shall out of profits that would otherwise have been available for dividend be trasferred to a reserved fund, to be called the capital redemption reserve fund, hence a sum equal to the nominal amount of the shares redeemed. The provisions of the Act relating to the reduction of the share capital of a company shall apply to the reserve fund as if it were paid-up share capital of the company, but subsection 5 provides that the capital redemption reserve fund may be applied by the company in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares. These provisions are intended to prevent a company's authorised capital from being reduced by any redemption of the redeemable preference shares of the company.