Use of share premium
This query is : Resolved
13 June 2012
Dear Experts,
A company has Rs. 7 Crore in share premium account and invested the same amount in other companies.
Is this allowed? Is sec 78 is not violated?
Is it beneficial to purchase this company?
A company has Rs. 7 Crore in share premium account and invested the same amount in other companies.
Is this allowed? Is sec 78 is not violated?
Is it beneficial to purchase this company?
13 June 2012
Vide Section 78(2) in The Companies Act, 1956
(2) The share 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 the 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.
Therefore , utilisation of Share Premium amount for any other purpose would amount to Reduction of Capital.
(2) The share 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 the 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.
Therefore , utilisation of Share Premium amount for any other purpose would amount to Reduction of Capital.
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