Security (share) premium

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kantijain (Querist)
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25 October 2010 1. whether Security (share) premium is to be considered as paid up capital for the purpose of caro & CS appointment.

2. also as per the companies act, 1956, the security premium is a restricted reserve/fund.

Sec.78 restrict the usage of Securities Premium only for the following purposes---
* Can be used to issue fully paid up bonus shares and such premium amount used should be realised in cash.
* To write off preliminary exp. of the company.
*To write off any exp of or commission, discount allowed on any issue of shares or debenture.
* To provide for premium on redemption of shares or debentures.

Whether we can use security premium for acquisition of other company or expansion of the company, if so how??? if not how are so many listed company utilising the share premium collected at the time of IPO. whether it will not result in blockage of funds.......???

Aditya Maheshwari

Aditya Maheshwari (Expert)
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25 October 2010 Share premium to be considered as paid up capital for CARO as it states paid up captial + reserves whereas in section 383A it is mentioned only paid up capital. So it would be counted for CS appointment.

What the section 78 means that the credit balance in premium account be utilised for and be adjusted for various debit items.

So for the purpose of Section 372A securities premium is included for calculating the limits of investments that could be made by a public limited company though u cannot invest or net off the balance with investments.