Regarding your question nos. 1 and 2:-

As your comapny is a private company no rules apply on it and it can issue any shares at any price to its promoters within the limits of Authorised Capital. Just to pass Board resolution and file form 2.

Regarding your question no. 3:-

Yes, the amount of Security Premium can only be utilized:-

(a) in paying up unissued shares of the company to be issued to 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 allwed on, any issue of shares or debentures of the company; or

(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

A short note which I posted today in "Files" Section in reproduced hereunder:

ISSUE OF SHARES AT DISCOUNT

Section 78

Approvals Required

Ø  A company may issue its share at premium that is, at a value higher than the face value of the share.

Ø  The power to issue shares at premium need not be given in the Articles of Association.

Ø  However, according to recent guidelines issued by Securities and Exchange Board of India (SEBI), a new company set up by entrepreneur without any track record can issue capital to public only at par.

Other Requirements

Ø  The amount of share premium received shall be transferred by the company to the Securities Premium Account.

Ø  The Securities Premium Account may be applied by the company only for the following purposes:

ü  For the issue of fully paid bonus shares to the members of the company.

ü  For writing off preliminary expenses of company.

ü  For writing off the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company.

ü  For providing premium payable on the redemption of any redeemable preference shares or debentures of the company.

Hope the same is useful.

Thanks a lot..

just last question.. as the paid up capital is Rs. 2 lakhs and Authorised is Rs.5 Lakhs...does that mean my share premium account can be of maximun Rs. 3 Lakhs?

and also do let me know how does share premium account appears in Balance Sheet? does it fall under Share Capital or Reserves and surplus?

Dear Swati,

Regarding your first question, the amount of premium is not limited updo the amount of Authorised Capital.

Secondly, Security Premium account is shown under Reserve and Surplus head.

thanks a lot ...could you pls tell me the exact section number in companies act which i need to refer for issuing shares at premium

I know section 78 for usage of Share Premium amount.

My Company is Newly incorporated (29.09.2011) Unlisted Public Company with Seven Members. We want to issue further shares at Premium to the existing members only . What will be the step by step procedure from a Company Secretary's point of view ? Please Guide. Is Section 81 (1A) is applicable in this case ?

r there any recent circulars ( income tax or otherwise) restricting issue of shares of newly formed companies at a premium??