APPLICATION OF PREMIUMS RECEIVED ON ISSUE OF SHARES

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 reduction of 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.

Securities premium account can be utilised for—

To issue fully paid-up bonus shares to its existing shareholders. However, you cannot exceed the limit of the unissued share capital of the company.

Securities Premium Account can be used for writing off any preliminary expenses of the company.

To write off expenses of issue of shares and debentures, such as commission paid or discount given on the issue of shares.

The balance can also be used to provide for the premium that is payable on the redemption of debentures or of preference shares of the company.

And finally, it can be utilized by the company to buy back its own shares.

NOTE: WHEN PREMIUM IS RECEIVED WITH APPLICATION MONEY

If the premium amount is called and received with the application money we do not credit it directly to the Securities Premium A/c. The application is received but it could be rejected as well, so we wait until the application is accepted and finalized.

One point to remember is if any advance money was received during the application, then such money may be adjusted towards the share allotment account. However, first the advance should be adjusted against the nominal value of the shares, and if still balance is left then be adjusted against the securities premium account.

COMMENT: THE PROVISIONS OF THESE RULES SHALL APPLY TO

(a) all unlisted public companies;

(b) all private companies; and

(c) listed companies so far as they do not contradict or conflict with any other regulation framed in this regard by the Securities and Exchange Board of India.

(3) The securities premium account may, notwithstanding anything contained in sub-sections (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

COMMENT: CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS (SECTION 133)

The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.

Provided that until the National Financial Reporting Authority is constituted under section 132 of the Companies Act, 2013 (18 of 2013), the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by National Advisory Committee on Accounting Standards Constituted under section 210A of the Companies Act, 1956".

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

THE AUTHOR – CS DEEPAK SETH (ASSOCIATE PARTNER HELPINGHANDS PROFESSIONALS LLP) AND CAN BE REACHED AT CONTACTHHPRO@GMAIL.COM OR 9910248911.

APPLICATION OF PREMIUMS RECEIVED ON ISSUE OF SHARES