Issue of shares at premium

A company may issue shares at a premium i.e. at a value above its par value. The following conditions must be satisfied in connection with the issue of shares at a premium:-

1.The amount of premium must be transfered to an account to be called share premium account. The provisions of this Act relating to the reduction of share capital of the company will apply as if the share account premium account were paid up share capital of the company.
2.Share premium account can be used only for the following purposes :-
1. 1.In issuing fully paid bonus shares to members.
2.In Writing off preliminary expenses of the company.
3.In writing off public issue expenses such as underwriting commission, advertisement expenses, etc
4.In providing for the premium payable paid on redemption of any redeemable preference shares or debentures.
5.In buying back its shares.   

A public co can issue the share at premium

Hello Vikas

 

Thanks for your reply. But you have not mentioned whether as a newly formed company, we can issue shares at premium or not??

Once again thanks for your reply

 

Regards

 

Nayeem Manzoor

Share premium in excess of fair market value to be treated as income. As per Section 56(2)sub-clause [(viib)] of Income Tax Act, in case of a company, not being a company in which the public are substantially interested, which receives, in any previous year, from any person being a resident, any consideration for issue of shares and the consideration received for issue of such shares exceeds the face value of such shares, then the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax. An exemption was provided in a case where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.