HACCP Certification in India: Process, Cost, & Benefits 2026
05 Feb, 2026
By Online Legal India
Published On 05 Feb 2026
Category Company Registration
Capital Redemption Reserve is mainly linked to redemption of preference shares, and in limited buy-back cases, a similar reserve transfer may be required. CRR must be created before or at the time of redemption. Thus, CRR preserves the company’s capital structure and protects creditors. CRR applies primarily to redemption of preference shares; buy-back is governed separately under Section 68. Read this blog to know more about the Capital Redemption Reserve.
A company sets aside money from its profits to create the Capital Redemption Reserve. In Here, one can redeem the preference shares. The redemption preference share comes under section 55. The CRR is primarily associated with redemption of preference shares.
A Capital Redemption Reserve (CRR) helps companies. It maintains their capital base. This is important when capital is reduced. Capital reduction means lowering a company's paid-up capital. A company might reduce capital. This happens when it buys back shares. CRR rules apply specifically to redemption of preference shares under Section 55. Profits are transferred to CRR. This protects lenders. When a company's capital decreases, lenders may worry. They may worry about their loans. To keep lenders safe, the Companies Act mandates CRR. Companies must put a certain amount into CRR. Adding money to CRR stabilises capital.
All limited liability companies can raise preference capital. But they can only do so if their Articles allow it. Preference capital can last for a maximum of twenty years. According to the Companies Act, companies cannot issue irredeemable preference capital. A company might not have enough cash to repay preferred shares or pay dividends. In this situation, the company can raise more capital by issuing additional preferred shares. However, Dividends cannot be paid out of proceeds of fresh issue. So, the key takeaways from these are:
A company might want to pay back its preference capital using its profits. In this situation, it should move an amount equal to the value of the capital being paid back. This amount goes to the Capital Redemption Reserve (CRR). To do this, the company should take money out of the general reserve account and put it into the CRR account. A company redeems preference shares, buy-back applies to equity shares. The company should provide this extra money from its profits. Also, the company can use money from its securities premium account for this.
The CRR helps a company in many ways. These include the following:
The Capital Redemption Reserve (CRR) protects your company's financial health. It sets aside profit amounts. This also safeguards creditor interests. The CRR maintains adequate capital in your company.
Section 55 of the Companies Act, 2013, has specific rules. Companies buying back preference shares are redeemed, not bought back. This amount goes into a Capital Redemption Reserve account. This account is crucial for legal compliance.
The CRR is funded by setting aside company profits. This promotes stability and trust.
Creating a CRR impacts dividend payments. Though it has no direct role in the dividend policy. The company cannot distribute funds in the CRR as dividends. It prompts careful consideration of profit allocation between dividends and reserves. This helps reward shareholders while retaining sufficient funds.
In this case, a CRR should be set up. The amount in the CRR should match the face value of the preference capital that the company redeems. You should only add money to the CRR. CRR is required only to the extent redemption is done out of profits, not based on limits.
The CRR relaxations: The company can also get money back to investors by issuing new capital. If this happens, they won't have to follow the rule about keeping a certain amount of cash reserve. This only applies if the new capital raised equals the amount the company is returning. The new capital is less than the amount returned. The company needs to keep a cash reserve equal to that difference.
Application: The payout can come from some of the profits and some from new shares. In these cases, the rule to create a CRR only applies to the part of the capital that comes from profits. Instead of the capital returned, the company can raise either equity or preference capital.
A company uses CRR when they face issues with bonuses. The capital redemption reserve account helps companies give free bonus shares to their current members. This reserve helps protect the company's lower share value. Capital reconstruction occurs when a company changes its share capital. The CRR can help make this easier. It can be used to change shares from one type to another or to change the value of shares. This protects the shareholders' investments and keeps the company financially stable. It is an account that keeps the money equal to the decrease in share capital.
The difference between CRR and other reserves is as follows:
| Aspects | Capital Redemption Reserve | Other Reserves |
|---|---|---|
| Definition | It is a special type of reserve. CRR helps maintain capital after redemption of preference shares | A company can create other reserves for various purposes. It serves many functions within a company |
| Legal Requirement | The company law mandates a company (limited by shares) to make CRR | One can create it voluntarily |
| Disclosure | Company law needs some specific disclosures. It needs to be there in the financial statements | The disclosure is based on the nature. The transparency needs to be there in the financial statements |
| Utilization | CRR can be used only for issuing fully paid bonus shares | It can be used for different things, like handling unexpected costs and paying for future projects. It helps in covering losses or giving as a dividend |
Conclusion
The Capital Redemption Reserve is an important financial aspect of a business. It helps to redeem the amount in times of crisis. The process is simple and cost-saving. Besides, this helps to maintain the capital base of your company. For more information, contact Online Legal India today.
FAQs
1. What is the purpose of CRR?
CRR maintains capital after redemption.
2. When can a company opt for CRR?
A company opts for CRR when it redeems its preference share
3. Can I use CRR to pay dividends?
Unfortunately, no. The CRR cannot be used to pay dividends.
Disclaimer
This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.
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