Issue of Shares at Premium When shares are issued at a price above the face or nominal value, they are said to be issued at a premium. For example, a share having the face value of Rs. is issued at Rs. .
Here, Rs. is the premium. The amount of share premium has to be transferred to an account called the ‘Securities Premium Account’. This account is capital in nature and can only be utilized for the purposes specified by the Act under Section viz; Issue of fully paid bonus shares to members of the company.
(i) To write off preliminary expenses. (ii) To write off the expenses of issue, or commission paid, or discount allowed, on issue of shares or debentures of the company. (iii) To provide for the payment of premium on the redemption of any redeemable preference shares or debentures of the company. Thus, the Securities Premium Account cannot be treated as a revenue reserve for distributing dividends.
It can only be used for the above mentioned purposes and also for buying back of securities (section 77A). It must be noted that Security premium is not available for distribution of dividend. 12th Commerce Unit - - . .