Section 78 of the companies Act, 1956 contains the provision regarding the issue of shares at premium by a public company. This section provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the value of the premium on those shares should be transferred to an account called the “Security Premium Account”.
Purpose for which the money received as share premium may be issued by the company:- The share premium may be applied by the company for following purposes:-
- In writing off the preliminary expenses of the company or
- In issuing to the members of the company fully paid bonus shares; or
- In writing off the expenses or the commission paid or discount allowed on any issue of shares or debentures of the company.
- In providing for the premium payable on redemption of any redeemable preference share or any debenture of the company. Issue of the securities at differential premium is allowed. The value which the acquirer of securities may pay in excess of the par value for acquiring the shares depends upon the contract between the company and acquirer of such securities.
Issue of share at a premium for consideration other than cash: It is possible for the company to issue shares at a premium for consideration other than cash. In such a case, a sum equal to the amount of the premium must be transferred to the share premium account.
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