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issue of share at premium

Pawan Singhal (chartered accountant) (655 Points)

29 January 2010

One of my client (Pvt. Ltd. Co.)issue share Face Value 10 and on Rs. 90 Rs. Premium . co. is a private limited company and it is newly formed. Now ITO Want justification For Rs. 90 premium per share . If you have any case law or justification please provide me.

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8 Replies

Mahavir (Student) (161 Points)
Replied 29 January 2010

Hi Pawan...first of all a newly formed company cannot issue shares at premium.....and it shud be approved by SEBI......your company must have approval from SEBI and you can show the same to ITO....

Hi Friends......Please correct if i am wrong.......

Thanks

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Max Payne (employed) (2574 Points)
Replied 29 January 2010

Dear Pawan Sir,

SEBI guidelines on issue at premium are not applicable to pvt and unlisted companies.

Justifications u can give ITO for issue at premium could include:

1. Reduce fees for ROC to increase the authorised capital (for filing MOA, Form 5)

2. Keeping the capital within authorised capital limit as per MOA.

3. Preventing dilution of control among shareholders by reducing no of shares issued

4. More capital for investments

5. Reducing finance charges by using less external funds

2 Like

Amir (Learner) (4016 Points)
Replied 29 January 2010

Dear Pawan, I agree with Friend G.K. G.K. good answer..

Max Payne (employed) (2574 Points)
Replied 30 January 2010

Thanks fr the appreciation amir bhai.. :)

1 Like

CA. ANKUR (ASST. MANAGER ACCOUNTS) (54 Points)
Replied 30 January 2010

Dear Pawan On what groungs is ITO asking justification as Share Premium is a Capital Receipt for the company and any co. to whom SEBi guidelines are not applicable are free to issue there shares at any price. So Please tell me on what ground is ITO wants Justification

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 30 January 2010

Originally posted by : Pawan Singhal
	One of my client (Pvt. Ltd. Co.)issue share Face Value 10 and on Rs. 90 Rs. Premium . co. is a private limited company and it is newly formed. Now ITO Want justification For Rs. 90 premium per share . If you have any case law or justification please provide me.

Pawan..

ITO shud concern wid only those matters which can be added to the income.. I dont think that he can ask for Premium Justification.. but i know that we cant object him practically..

So if u don't get any case law on this, then i suggest u to prepare an statement in which projection of future profit is incorpoarted n set ur EPS in such a way so that EPS*P/E Ratio will be equal to Rs 100 approx.. this way u can justify him...

I think, premium justification is just a tool for him for negotiation (i think u get my point)..

Adarsh

1 Like

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 30 January 2010

nice suggestion Adarsh. Most listed companies issue shares on the same basis. So you can also use the same concept.

1 Like

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 30 January 2010

Originally posted by : Aditya Maheshwari
	nice suggestion Adarsh. Most listed companies issue shares on the same basis. So you can also use the same concept.

Thanks for Appreciation Aditya Ji... Actually ROC has also asked the same query on e-filing of form2 in respect of share allotment..