# Issue of Shares at Premium — Section 52

## Concept

When a company issues shares at a price higher than their face value, the differential amount is called premium. The Act imposes no restriction on the sale of shares at premium — if a market exists, premium issue is permitted.

## Key Points on Premium Issue

1. No specific AOA authorisation needed to issue at premium.

2. SEBI guidelines must be observed by listed entities.

3. Premium may be received in cash or in kind.

## Securities Premium Account — Treatment

The amount of premium (cash or kind) must be carried to a separate account called the Securities Premium Account (SPA).
SPA must be maintained with the same sanctity as paid-up share capital.
It can be reduced only in the manner that paid-up share capital can be reduced under the Act — except for permitted uses under sub-sections (2) and (3).

### Disclosure

Shown as a separate item in the Balance Sheet under Schedule III, Part B.
If wholly or partly disposed, disclose how it was disposed.

### Nature

NOT a free reserve — it is in the nature of a capital reserve (per DCA opinion).
Reduction allowed under schemes that experts approve as fair, just and proper.

## Application of Securities Premium Account [Sub-sections (2) & (3)]

### General Rule — Sub-section (2): SPA can be applied for —

#	Purpose
a	Issue of fully paid bonus shares
b	Writing off preliminary expenses
c	Writing off issue expenses (including commission paid / discount allowed on issue of shares or debentures)
d	Premium payable on redemption of preference shares or debentures
e	Buy-back under Section 68

### Restricted Rule — Sub-section (3): Overrides Sub-section (2)

For a prescribed class of companies whose financial statements comply with accounting standards under Section 133, SPA can be used ONLY for —

#	Permitted Purpose
a	Issue of fully paid bonus shares
b	Writing off issue expenses (commission/discount on shares only — NOT debentures)
c	Buy-back under Section 68

Thus, for this restricted class, preliminary expense write-off and premium on redemption are NOT permitted uses of SPA.

Worked example

### Example 1

Example 1 — Premium on issue:

ABC Ltd issues 1,00,000 equity shares of ₹10 each at ₹15 per share. Premium per share = ₹5. Total premium = ₹5,00,000 credited to Securities Premium Account.

Journal Entry:

Bank A/c Dr. ₹15,00,000
To Equity Share Capital A/c ₹10,00,000
To Securities Premium A/c ₹5,00,000

### Example 2

Example 2 — Restricted use:

XYZ Ltd (a listed company complying with AS under Sec 133) wants to use ₹2 lakh from SPA to write off preliminary expenses. This is NOT permitted under Section 52(3). The company must instead charge preliminary expenses to P&L.

### Example 3

Example 3 — Permitted use for non-restricted company:

PQR Ltd (a private company not in the restricted class) can use SPA to write off preliminary expenses, premium payable on redemption of preference shares, and to issue bonus shares.

⚠️ Common exam mistakes

Treating Securities Premium Account as a free reserve available for dividend — it is a capital reserve.
Forgetting that for the restricted class (companies complying with AS under Section 133), only three uses are permitted under sub-section (3).
Assuming AOA authorisation is required for premium issue — it is NOT.
Forgetting that the SPA can only be reduced as if it were paid-up share capital — i.e., subject to Section 66 procedures except for permitted applications.
Including write-off of preliminary expenses as a permitted use for ALL companies — it is restricted under sub-section (3).

Bare-Act text Section 52 · The Companies Act, 2013 · click to expand

Section 52(1): Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a 'securities premium account'... Section 52(2): The securities premium account may be applied by the company — (a) towards issue of unissued shares of the company as fully paid bonus shares; (b) in writing off the preliminary expenses; (c) in writing off the expenses of, or commission paid or discount allowed on, any issue of shares or debentures; (d) in providing for the premium payable on the redemption of any redeemable preference shares or debentures; (e) for the purchase of its own shares or other securities under section 68.

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Issue of Shares at a Premium & Application of Securities Premium Account (Section 52)

Worked example

⚠️ Common exam mistakes