Shares issued at a premium, Business Law and Ethics

Shares Issued At A Premium:

A company may at times issue its shares at a price above their nominal value, i.e at a premium. This may be necessitated by the fact that the company's shares which have already been issued are being sold in the open market at a price which is above their nominal value. Since such an issue does not jeopardize the position of the company's creditors there is no legal requirement that the issue be confirmed by the court. However, Section 58 (1) provides that where a company issues shares at a premium, where for cash or else or there may a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account called "the share premium account". However the section further offers that the share premium account shall be governed by the provisions of the Companies Act relating to the reduction of the share capital of a company as if the share premium account were paid share capital of the company. This means, in effect, that the funds credited to the share premium account are not paid out by the company except in the legitimate course of its business.

Sub-section 2 provides that the share premium account may however be applied by the company:

a)      To pay up unissued shares of the company which are to be issued to members of the company as fully-paid bonus shares;

b)      To write off the preliminary expenses of the company;

c)      To write off the expenses of any issue of shares or debentures of the company, or the commission paid or discount allowed on such issue, or

d)      To provide for the premium payable on redemption of any redeemable preference shares or debentures of the company

Posted Date: 1/12/2013 4:13:57 AM | Location : United States

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