Benefits of Preference Redeemable shares issued at a premium
Preference Redeemable shares (PRS) are issued at a premium in exchange of the funds to be contributed by the shareholders.
These are shares issued on terms that the company will, or may, buy them back (redeem them) at some future date. The redemption date as well as the redemption price may be fixed upon their issue or may be at the company’s/shareholders’ discretion.
PRS may be redeemed at the option of the Company or the shareholders out of the share premium account or the retained earnings provided that these shares have been paid in full and that there are sufficient reserves (ie share premium and retained earnings) to be used in the redemption. The redemption of the PRS is effected on such terms or in a such manner as may be provided in the Company’s Articles.
The redemption process is relatively a flexible and quick process which usually takes no more than 2 weeks as it does not require a court approval (as opposed to the capital reduction process).
Generally no tax implications are foreseen to arise in Cyprus either upon the capital injection into the Company or upon the payment to the non- resident shareholders arising out of the redemption of PRS. In case of resident shareholders, the redemption of shares does not give rise to any taxes in Cyprus provided that upon the redemption no funds are paid in excess of the capital injected initially.
The redemption of the PRS is considered to be the most efficient and effective way in case shareholders wish to receive funds injected in the form of capital back.
The author of the article is Mary Trimithiotou
Mary is the Director at Royal Pine & Associates. She is a qualified accountant with a solid experience in the corporate industry. Mary is a results driven, self-motivated and resourceful Director with a proven ability to develop and strengthen management team in order to maximise company profitability and efficiency.