Security premium section 52

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1359 Points Joined October 2021
according to section 52 a company can use security premium for the purpose mentioned in sec 52 only but many companies use it for their working capital requirements which is not mentioned in section 52 so how they are doing this ?
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On 26 July 2024 at 02:54 Report
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Master in Accounts & high court Advocate
9060 Points Joined December 2011

A great question about Section 52 of the Companies Act, 2013!

 Section 52 of the Companies Act, 2013, deals with the utilization of the securities premium account. According to this section, the securities premium account can be used for specific purposes, such as:

1. _Issuing fully paid-up bonus shares_: The securities premium account can be used to issue fully paid-up bonus shares to the shareholders.

2. _Writing off the preliminary expenses_: The securities premium account can be used to write off the preliminary expenses incurred by the company.

3. _Writing off the expenses of, or the commission paid or discount allowed on, any issue of securities_: The securities premium account can be used to write off the expenses of, or the commission paid or discount allowed on, any issue of securities.

4. _Providing for the premium payable on the redemption of any redeemable preference shares or debentures_: The securities premium account can be used to provide for the premium payable on the redemption of any redeemable preference shares or debentures.

However, using the securities premium account for working capital requirements is not explicitly permitted under Section 52.

 So, how are companies doing this?

There are a few possible explanations: 1. _Interpretation of the law_: Companies might be interpreting the law in a way that allows them to use the securities premium account for working capital requirements. However, this interpretation might not be in line with the spirit of the law.

 2. _Accounting treatments_: Companies might be using accounting treatments that allow them to allocate the securities premium account to other reserves or accounts, which can then be used for working capital requirements.

3. _Regulatory approvals_: Companies might have obtained regulatory approvals or exemptions that allow them to use the securities premium account for working capital requirements.

 4. _Non-compliance_: Unfortunately, some companies might be using the securities premium account for working capital requirements without proper justification or regulatory approvals, which could be considered non-compliance. It's essential to note that using the securities premium account for working capital requirements without proper justification or regulatory approvals can be considered a serious compliance issue.

Companies should ensure that they comply with the provisions of Section 52 and seek regulatory approvals or exemptions if needed.

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On 10 February 2025 at 03:50


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