Full formBusiness & Corporate
ERRstands forEquity Redemption Reserve
Full Form of ERR
What is ERR?
The Equity Redemption Reserve (ERR) is a statutory reserve created by companies as per the Companies Act, 2013, specifically for the redemption of preference shares. In India, it is a mandatory requirement under Section 55 of the Act for any company that issues preference shares. The reserve is funded entirely from the company's profits and cannot be used for any other purpose such as dividend distribution or operational expenses. ERR appears on the liabilities side of the balance sheet under 'Reserves and Surplus' and ensures that funds are set aside to meet redemption obligations, thereby protecting shareholder interests. This concept is widely applied in corporate finance, accounting, and regulatory compliance. For students and professionals preparing for chartered accountancy (CA), company secretary (CS), or CFA exams, understanding ERR is crucial as it frequently appears in questions on share capital, reserves, and corporate restructuring. The reserve is typically created at the time of issuing preference shares and must be fully maintained until redemption is completed. Non-compliance can lead to penalties, making ERR a key governance tool in Indian business.
ERR का फुल फॉर्म
इक्विटी रिडेम्पशन रिज़र्व
Example
The board approved transferring ₹5 crore to the Equity Redemption Reserve to comply with statutory requirements for the upcoming redemption of preference shares.
ERR — frequently asked questions
What is the full form of ERR?
The full form of ERR is Equity Redemption Reserve. It is a reserve created by Indian companies out of profits to redeem preference shares as mandated by the Companies Act, 2013.
Is ERR mandatory for all companies?
No, ERR is mandatory only for companies that issue preference shares. Such companies must create this reserve before or at the time of issuing these shares.
Can ERR be used for any other purpose?
No, ERR can only be used for the redemption of preference shares. It cannot be utilised for dividend distribution, expansion, or any other business purpose.