Shares can be issued __________.PremiumDiscountAny of the above threePar (2024)

FAQs

What is the premium on issue of shares can be issued for? ›

As per Section 52(2) of Companies Act 2013 states that premium on issue of shares can be used for: Issuing fully paid-up bonus shares. It can be used while writing the preliminary expenses of the company.

Companies issue shares to the public to raise money. They initially sell a set number of shares to investors, and then those same shares can be traded among investors on a secondary market. Issued shares are those that the founders or BofD have decided to sell in exchange for cash.

The premium amount or the amount in excess of par value which is obtained by issuing of shares is credited to a separate account and that account is called as the securities premium account. It is shown under the head Reserves and Surplus on the liabilities side of a company's balance sheet.

Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees or for issuing bonus shares to shareholders.

When the company decides to issue shares at a price higher than the nominal value or face value we call it shares issued at a premium. It is quite a common practice especially when the company has a great track record and strong financial performances and standing in the market.

When the shares are sold at their nominal value, they are said to be issued at par. The amount above the face value is the premium, and shares are sold with a premium cost more than their nominal value. Conversely, shares sold at a discount cost less than the face/nominal value.

The number of authorized shares per company is assessed at the company's creation and can only be increased or decreased through a vote by the shareholders. If at the time of incorporation the documents state that 100 shares are authorized, then only 100 shares can be issued.

How Shares are Issued and Regulated. Generally, a company's board of directors is given a specific number of shares that can be issued. These are called authorized shares. Issued shares are the number of shares sold to shareholders and counted for ownership purposes.

Financing growth: Companies may issue shares to raise capital to fund expansion plans. It can be opening new locations, developing new products, or acquiring other businesses. Repaying debt: Companies may issue shares to raise capital to repay outstanding debt.

The share premium account represents the difference between the par value of the shares issued and the subscription or issue price. Share premium account may also be known as additional paid-in capital and can also be called paid-in capital in excess of par value.

What is a premium account? ›

A premium savings account offers perks for meeting a high minimum balance requirement and/or having a relationship with the bank, meaning that you have multiple accounts with the same bank. These accounts could include bank accounts, credit cards and loans.

It arises when the company issues its shares for the first time to the public above its face value, not when the investors sell them in the open market. For example, if the company sells its shares, having a face value of $3 per share at the price of $5 per share, then the share premium reserve is $2 per share.

Minimum subscription refers to the minimum amount which a company should raise at the time of issuing capital. The requirement for minimum subscription applies to all companies which raise funds from the public. The company may successfully procure the amount of minimum subscription.

Typically, the share premium, in balance sheet spreadsheets, is listed under the capital and reserves section. The funds held in a share premium account are non-distributable reserves, meaning that the money cannot be treated as profit to be used for general purposes, such as paying dividends to shareholders.

Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees or for issuing bonus shares to shareholders. Beyond selling shares above par, the share premium account can be credited if the government donates land to the company.

A share premium is the amount of money that a company receives for its shares over and above their nominal value. Thus, the 'premium' is the difference between the nominal value assigned by the company and the actual market value that a shareholder pays for the shares.

Advantages of Issue of Shares at Premium

It keeps the reserves of the company high. Premium increases the book value per share of the company. It also makes the earning per share higher. The company can easily issue bonus shares in the future because of its stronger capital base.

Securities premium cannot be used as working capital.