For what purpose securities premium can be used?
According to Section 52 of the Act, securities premium can be used for the following purposes: For the issue of fully paid bonus share capital. For meeting the preliminary expenses incurred by the company. For meeting the expenses, commission or discount incurred concerning securities previously issued by the company.
In accordance with article 3 of the Companies (Reduction of Share Capital) Order (SI 2008/1915), the reserve created on such reduction can be treated as a realised profit and, therefore, it may be distributed to shareholders or used to buy back shares.
Shares are considered to be issued at a premium if the amount received for issued shares is greater than the face value of shares. The premium is calculated by finding the difference between the share issue price and the par value of shares offered for sale.
‘Securities Premium Reserve’ cannot be used as working capital. It can be used only for those purposes which are specified under section 52 of Companies Act, 2013.
All types of companies can issue their shares at premium. As per the provisions of Section 52 of the Companies Act, 2013 a company can issue shares at a premium, whether for cash or otherwise.
You can reduce the share premium account to zero. You can also reduce the capital redemption reserves and redenomination reserve to zero. The capital can be paid back to the shareholders and must be repaid at par value. You cannot repay share capital at a premium or repay at less than the nominal value.
There are a few steps to go through, in summary these are:
- Ensure the company’s articles allow a capital reduction.
- All directors must sign a solvency statement.
- Shareholders must approve the capital reduction via a special resolution (needing 75% of the votes) within 15 days of the solvency statement date.
You will label the debit (the amount you paid to buy back the stock) as “treasury stock.” Underneath, notate a credit for the same amount in cash. Using the example of 10,000 shares from step one, you will label a debit of $150,000 as “treasury stock,” and a credit for the same amount as “cash.”
Securities and Exchange Board of India.
When shares are issued at a price higher than the face value, they are said to be issued at a premium. Thus, the excess of issue price over the face value is the amount of premium. … the premium on issue of shares must not be treated as revenue profits.
A company issues its shares at a premium when the price at which it sells the shares is higher than their par value. This is quite common, since the par value is typically set at a minimal value, such as $0.01 per share. The amount of the premium is the difference between the par value and the selling price.
In order to retire stock, the company must first buy back the shares and then cancel them. Shares cannot be reissued on the market, and are considered to have no financial value. They are null and void of ownership in the company.
Under the circumstances, a company can redeem its preference shares (i) using fresh issue of shares and (ii) out of profits by creating Capital Redemption Reserve.