Preference Shares

Hi,

as far money is concerned you can use money of any type, either that is the part of face value or security premium.

only restriction is accounting treatment.

As per Section 78 of Companies Act, 1956 Amount standing in Security Premium can be used only for certain purpose.

in the present case you can write off the premium payable on redemption through Security premium Account, but as far as nominal value of redeemed pref. shares is concerned, either comapny has to issue fresh shares of same value or transfer an equal amount of nominal value of preference share redeemed from General Reserve/ P&L account to Capital Redemption Reserve Account.

Rajeev   

As per Section 78(2)(d) securities premium account can be used for paying premium payable on redemption of preference shares or debentures of the company. Hence Securities premium account can not be used for redemption of preference shares.

Any other views please?????????

agree with syam kamal

As per Section 78(2)(d) securities premium account can be used for paying premium payable on redemption of preference shares only

I m not denying that security premium can be used only for premium payable on redemption of preference shares.

but that is for accounting part.

if we are issuing the shares at premium we can use the whole cash proceeds for redemption of  preference shares. there is no restriction on using the cash proceeds. only restriction is for accounting treatment.

 Rajeev

Hi....

Agreed with expert Rajeev.....

As per section 78 the amount standing in Security Premium account can be utilized for the premium payable on the redemption of any redeemable preference shares or of any debentures of the Company.

Therefore, the Security Premium can be utilized for adjusting the premium on redemption only.

As per Section 78(2)(d) securities premium account can be used for paying premium payable on redemption of preference shares or debentures of the company. Hence Securities premium account can not be used for redemption of preference shares.

agreed to all...

The amount received towards subscripttion of fresh issue and the share premium received on such issue shall be applied for redemption of preference shares as per section 80(1)(a) and 80(1)(c) of the Companies Act.

ya.. i accept that only for accounts part it has to be divided... but if your fresh issue along with reserves doesnt sum upto the nominal value of the preference shares to be redeemed, then the accounts part will not be able to be correct....

so better while using the proceeds itself it is better that you bifurcate face value and securities premium in the new issue, to avoid confusions...

Originally posted by : Jayashree S Iyer
	The amount received towards subscriptttion of fresh issue and the share premium received on such issue shall be applied for redemption of preference shares as per section 80(1)(a) and 80(1)(c) of the Companies Act.

what you ve said is correct mam, but securities premium, premium received on issue of new shares or received already on shares previously issued, can be used specifically for four purposes,

78. Application of premiums received on issue of shares
(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called "the 1[securities] premium account"; and the provisions of this Act relating to the reduction of the 1[securities] capital of a company shall, except as provided in this section, apply as if the 1[securities] premium account were paid-up 1[securities] capital of the company.

(2) The 1[securities] premium account may, notwithstanding anything in sub-section (1), be applied by the company-

(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 commission paid or discount allowed 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.