When a company sells its shares at a price higher than the face value, that extra amount is called a share premium. For example, if Rajesh & Co. Pvt. Ltd. issues shares of ₹10 face value at ₹150 each, the extra ₹140 per share is the premium. Section 52 says: you cannot just pocket this premium and mix it with profits — you must park it in a separate account called the Securities Premium Account (SPA). Think of it as a ring-fenced piggy bank that has rules about how it can be broken open.
Once the SPA is created, it is treated almost like paid-up share capital — meaning you cannot distribute it as dividends or use it freely. It is protected. However, the law does allow the company to use it for five specific purposes: (a) issuing fully paid-up bonus shares to members, (b) writing off preliminary expenses (costs incurred before the company was even formed), (c) writing off share/debenture issue expenses, including commission or discount on such issues, (d) providing for the premium on redemption of redeemable preference shares or debentures, and (e) buying back its own shares under Section 68. These are exhaustive — no other use is permitted.
Sub-section (3) carves out a special rule for certain prescribed companies (mainly those following Ind AS accounting standards). These companies get a slightly narrower list — they can only use SPA for bonus shares (equity only), writing off equity issue expenses, or buyback. Crucially, they cannot use SPA for writing off preliminary expenses or for redemption premium. This distinction is exam-relevant. This section is asked frequently as a 4-mark or 6-mark question — either as a straight 'state the uses of SPA' or as an application-based problem identifying valid/invalid uses.
Example 1 — Computing Securities Premium Account balance
ABC Ltd. issues 20,000 equity shares of face value ₹10 each at ₹85 per share.
| Particulars | Amount |
|---|---|
| Issue price per share | ₹85 |
| Face value per share | ₹10 |
| Premium per share | ₹75 |
| Total shares issued | 20,000 |
| Securities Premium Account (20,000 × ₹75) | ₹15,00,000 |
This ₹15,00,000 must be credited to the Securities Premium Account — not to General Reserves or Profit & Loss.
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Example 2 — Identifying valid vs. invalid use
XYZ Ltd. has ₹8,00,000 in its Securities Premium Account. The Board proposes the following uses:
1. Issue bonus shares to existing members — ₹3,00,000
2. Pay interim dividend — ₹2,00,000
3. Write off commission paid on debenture issue — ₹1,50,000
4. Provide for premium on redemption of preference shares — ₹1,50,000
| Proposed Use | Valid? | Reason |
|---|---|---|
| Bonus shares | ✅ Yes | Sec 52(2)(a) |
| Interim dividend | ❌ No | SPA cannot be used for dividends |
| Commission on debenture issue | ✅ Yes | Sec 52(2)(c) |
| Redemption premium | ✅ Yes | Sec 52(2)(d) |
Valid uses total: ₹6,00,000. The interim dividend of ₹2,00,000 is not permitted.
📖 Bare Act text — Section 52, Companies Act 2013
(click to expand)
(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" 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) Notwithstanding anything contained in sub-section (1), the securities premium account may be applied by the company— (a) towards the issue of unissued shares of the company to the 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; (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or (e) for the purchase of its own shares or other securities under section 68. (3) The securities premium account may, notwithstanding anything contained in sub-sections (1) and (2), be applied by such class of companies, as may be prescribed and whose financial statement comply with the accounting standards prescribed for such class of companies under section 133,— (a) in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or (b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or (c) for the purchase of its own shares or other securities under section 68.