Issue of shares at premium and at discount
A limited company may issue the shares on following different terms.
- Issue of Shares for Consideration other than cash or for cash or on capitalization of reserves.
- Issue of Shares at par i.e. at face value or at nominal value.
- Issue of Shares at Premium i.e. at more than face value.
- Issue of Shares at Discount i.e. at less than the face value.
Issue of shares at premium
When the shares are issued at a price higher than the nominal value of the shares then it is called as shares issued at a premium. The amount of premium is decided by the board of Directors as per the guide lines issued by SEBI. Please note that the Securities Premium is a profit to the company, but it is not a revenue profit, it is treated as Capital Profit, which can be utilized only for the following purposes:
- Issue of fully paid bonus shares to the existing shareholders.
- Writing off the preliminary expenses of the company.
- Writing off the expenses of issue or the commission paid or discount allowed on any issue of shares / debentures.
- Providing the premium payable on redemption of preference shares or debentures. The company can utilize the security Premium for any other purpose only on obtaining the sanction of the court.
Issue of shares at a discount
The companies can issue the shares at a discount subject to the following conditions:
- The issue must be of a class of shares already issued.
- Not less than 1 year has at the date of issue elapsed since the date on which the company became entitled to commence business.
- The issue at a discount is authorized by a resolution passed by the company in the general meeting & sanctioned by the company law board.
- The maximum rate of discount must not exceed 10% or such rate as the company law board may permit.
- The shares to be issued at a discount must be issued within two months of the sanction by the company law board or within such extended time as the company law board may allow
