Section 52 of the Companies Act, 2013
Section 52 of the Companies Act, 2013 – Application of premiums received on issue of shares
Bare Act Language:
(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or the excess amount received by it over and above the face value of such shares shall be transferred to a “securities premium account”, and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.
(2) The securities premium account may be applied by the company:
(a) towards the issue of fully paid-up bonus shares to its members;
(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;
(d) in providing for the premium payable on redemption of any redeemable preference shares or debentures;
(e) for the purchase of its own shares or other securities under section 68.
(3) The securities premium account may be applied only for the purposes specified above.
Explanation:
When a company issues shares at a price higher than their face value, the extra amount is called the share premium.
This premium amount is not treated as profit, and hence cannot be distributed as dividends.
Instead, it is credited to a separate account called the Securities Premium Account.
This account can only be used for specific purposes mentioned in Section 52(2), ensuring transparency and proper financial control.
Practical Uses of the Securities Premium Account:
Bonus shares to shareholders.
Covering costs like issue expenses, preliminary expenses.
Premium on redemption of debentures/preference shares.
Buy-back of securities as per Section 68.
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