Shares at premium

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CA Riswa Parekh (Querist)
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04 April 2013 Experts pls explain that if one wants to incorporate private limited company than what is the benifit of issuing shares at premium ?
Can one wants to incorporate company at 100000 capital can issue share at Rs. 10 and premium Rs. 40 ?

What is the benifit of it at companys and shareholders point of view in doing that?

CA Riswa Parekh

CA Riswa Parekh (Querist)
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07 April 2013 Experts pls rply...

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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25 July 2025 Great question! Here's a clear explanation about **issuing shares at a premium** during incorporation of a private limited company:

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### 1️⃣ Can a company issue shares at a premium during incorporation?

**Yes.** When a company is incorporated, it can issue shares at a face value plus a premium. For example:

* Face value = Rs. 10 per share
* Premium = Rs. 40 per share
* Issue price = Rs. 50 per share

If the authorized capital is Rs. 1,00,000 (say 10,000 shares of Rs. 10 each), the company can issue shares at Rs. 50 each to raise a higher amount.

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### 2️⃣ What are the benefits of issuing shares at a premium?

#### Benefits for the Company:

* **More Capital without Increasing Share Capital:**
The company gets extra funds (premium) over and above the face value. This premium goes into a separate account called **“Securities Premium Account”** (Section 52, Companies Act 2013).

* **Use of Securities Premium Fund:**
The premium amount can be used for specified purposes such as:

* Issuing fully paid bonus shares to shareholders
* Writing off preliminary expenses
* Writing off expenses on issue of shares or debentures
* Buying back shares
* Providing for premium on redemption of preference shares or debentures

* **Strengthens Financial Position:**
The premium helps improve the company’s net worth without increasing the number of shares or face value, which can be good for creditworthiness.

#### Benefits for Shareholders:

* **Value Perception:**
Shares issued at a premium may reflect the perceived value of the company above the nominal value, indicating growth potential.

* **Protection Against Dilution:**
Issuing at a premium can avoid dilution of shareholding at face value.

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### 3️⃣ Any regulatory considerations?

* **Minimum Subscription:**
Company must receive minimum subscription (usually 90% of the issue) before allotment.

* **Disclosure in MOA/AOA:**
The authorized share capital and the face value per share must be mentioned in the Memorandum of Association (MOA).

* **Accounting Treatment:**
Premium received is credited to Securities Premium Account, a part of reserves and surplus in the balance sheet.

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### Summary Example:

| Particulars | Value (Rs.) |
| --------------------------- | ----------------------------------- |
| Authorized Share Capital | 10,000 shares @ Rs. 10 |
| Issue Price per Share | Rs. 50 (Face Rs.10 + Premium Rs.40) |
| Amount Received | Rs. 5,00,000 |
| Face Value Amount Credited | Rs. 1,00,000 |
| Securities Premium Credited | Rs. 4,00,000 |

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If you want, I can also explain how this impacts taxation or compliance or draft sample MOA clauses for shares issued at premium.

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