COMPANIES ACT 2013: SECTION 52 - ISSUE OF SHARES AT PREMIUM
Updated: Mar 16
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When shares are issued at a price higher than the face value, they are said to be issued at a premium. Thus, the excess of issue price over the face value is the amount of premium.
So here we are going to acquire knowledge about:-
What are shares?
What is meant by the issue of Shares?
What is meant by premium?
What is meant by the issue of shares at a premium?
SECTION 52: The Companies Act 2013?
1. What are shares?
Shares represent equity ownership in a corporation or financial asset owned by investors who exchange capital in return for these units. Common shares enable voting rights and possible returns through price appreciation and dividends.
In layman's terms - The capital of a company is divided into several small units of a fixed amount, each of which is called Shares. A 'share' is a share of the capital of a company.
2. What is meant by the issue of shares?
The issue of shares is the procedure in which enterprises allocate new shares to the shareholders. Shareholders can be either corporations or individuals.
The meaning of the Issue of Shares is that the shares of an enterprise or any financial asset are distributed among shareholders who wish to purchase them. These shareholders can be either individuals or corporates who take part in buying the shares at a specific price.
3. What is meant by premium?
A sum added to a regular price or charge.
A reward or recompense for a particular act.
A sum over and above a regular price paid chiefly as an inducement or incentive.
A sum in advance of or in addition to the nominal value of something bonds callable at a six percent premium.
Basically, when you offer or get something added to the actual you gave or received, that particular addition is known as premium.
4. What is meant by the issue of shares at a premium?
When the shares are issued at a price higher than the nominal value of the shares, then it is called shares issued at a premium. The amount of premium is decided by the Board of Directors as per the guidelines issued by SEBI. Please note that the Securities Premium is a profit to the company, but it is not a revenue profit; it is treated as Capital Profit. And the utility of that capital profit has been described in Section 52 of Companies Act 2013.
Section 52: Application of premiums received on issue of shares.
( The Companies Act 2013 )
(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a "securities premium account" and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.
(2) Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debenture of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
(3) The securities premium account may, notwithstanding anything contained in sub-section (1) and (2), be applied by such class of companies, as may be prescribed and whose financial statement comply with the Accounting Standards prescribed for such class of companies under section 133,—
(a) in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or
(c) for the purchase of its own shares or other securities under section 68.