The correct answer is: C. Both A and B
A capital redemption reserve is a type of reserve that companies can create to meet legal requirements or for voluntary purposes.
- Legal requirements
A company may be required to create a capital redemption reserve if it issues redeemable shares. Redeemable shares are shares that the company can buy back from shareholders at a specified time and price.
- Voluntary purposes
A company may create a capital redemption reserve for a variety of voluntary purposes, such as to strengthen its financial position or to provide a buffer against future losses.
The capital redemption reserve is a non-distributable reserve, which means that it cannot be paid out to shareholders as dividends. However, it can be used to offset losses or to pay for future share buybacks.
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