Section 69 of CA 2013 : Section 69: Transfer Of Certain Sums To Capital Redemption Reserve Account

Explanation using Example

Imagine a company called "Tech Innovations Ltd." decides to buy back 10,000 of its own shares, each with a nominal value of $10, from the open market because it believes the shares are undervalued. The company uses its free reserves for this buyback. According to Section 69(1) of The Companies Act, 2013, Tech Innovations Ltd. must then transfer $100,000 (10,000 shares x $10 nominal value) to a separate account called the capital redemption reserve account. This transfer must be clearly shown in the company's balance sheet.

Later, Tech Innovations Ltd. wants to reward its shareholders without paying cash dividends. It decides to issue bonus shares. To do this, under Section 69(2), the company can use the funds in the capital redemption reserve account to issue new shares to its existing shareholders as fully paid bonus shares, without requiring the shareholders to pay anything additional for these shares.