Companies Act Section 52 — Application of premiums received on issue of shares
CHAPTER IV SHARE CAPITAL AND DEBENTURES
Commercial / Corporate
Summary
Sub-section (1) states that when a company issues shares at a premium, meaning it sells them for more than their face value, the total extra amount received must be put into a special account called the "securities premium account". The rules of the Act that apply to reducing a company's share capital will also apply to this account, as if the account were the company's paid-up share capital, except where this section provides otherwise.
Sub-section (2) says that, despite what sub-section (1) says, the company can use the securities premium account for specific purposes. Under clause (a), it can use the account to issue unissued shares to its members as fully paid bonus shares. Under clause (b), it can use the account to write off the company's preliminary expenses, which are the costs of setting up the company. Under clause (c), it can use the account to write off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company. Under clause (d), it can use the account to provide for the premium payable when redeeming any redeemable preference shares or debentures of the company. Under clause (e), it can use the account to purchase its own shares or other securities under section 68.
Sub-section (3) provides that, despite sub-sections (1) and (2), the securities premium account may be used by a certain class of companies, as may be prescribed, whose financial statements comply with the accounting standards prescribed for such companies under section 133. Under clause (a), such a company can use the account to pay up unissued equity shares to be issued to members as fully paid bonus shares. Under clause (b), it can use the account to write off the expenses of, or the commission paid or discount allowed on, any issue of equity shares of the company. Under clause (c), it can use the account to purchase its own shares or other securities under section 68.
Official Text
(1) 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.
(2) Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
(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.