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
(c) for the
purchase of its own shares or other securities under section 68.
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.
0 Comments