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Purposes for which Share Premium Amount can be utilised

Companies Act

The conditions regarding the utilisation of the premiums received on the issue of securities is given in section 52 of the Companies Act, 2013, which is reproduced hereunder.

Securities Premium Account

> If a company has issued securities at a premium, whether for cash or in kind or otherwise,
> it has to transfer a sum equal to premium receipt amount to a 'securities premium account'.

Utilisation of Securities Premium Account by the Companies

A company may use the securities premium account for the following purposes:

Bonus shares: To issue the unissued shares to the shareholders as fully paid bonus shares; or

Writing off: To write off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures; or




Writing off: To write off the preliminary expenses; or

Provisioning: To provide for the premium payable on the redemption of any redeemable preference shares or of any debentures; or

Buy-back: To purchase its own shares or other securities (section 68).


Uses of Securities Premium Account by Certain Class of Companies

The use of securities premium account by certain class of companies is a bit different and restricted.

The class of companies, which we are referring here, are mentioned in Rule 3 of the Companies (Share Capital and Debentures) Rules, 2014:
i) unlisted public companies;
ii) private companies; and
iii) listed companies so far as they do not contradict or conflict with any other regulation framed in this regard by the SEBI.

The financial statement(s) of such class of companies comply with the accounting standards as prescribed under section 133.

The purposes for utilisation of the securities premium account by such class of companies are as follows:

Bonus shares: Paying up the unissued equity shares to be issued as fully paid bonus shares to  the shareholders; or

Writing off: Writing off the expenses of, or the commission paid or discount allowed on, any issue of equity shares; or

Buy-back: Purchasing back of its own shares or other securities in accordance with section 68.

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