# Shares Issued at Premium - Section 52

## Meaning

When a company issues shares at a price more than their nominal/face value, the excess is share premium.

## Treatment

Company shall transfer the premium amount to a Securities Premium Account.

## Permitted Applications of Securities Premium

The Securities Premium A/c may be applied only for the following purposes:

1. Towards issue of unissued shares to members as fully paid bonus shares.

2. In writing off preliminary expenses of the company.

3. In writing off expenses, commission, or discount on issue of shares or debentures.

4. In providing for premium payable on redemption of redeemable preference shares or debentures.

5. For buy-back of own securities (under Section 68).

## Auditor's Verification

The auditor needs to verify:

Whether premium received on shares has been transferred to a 'Securities Premium A/c'.
Whether application of the said amount is only for the purposes mentioned above.

Worked example

### Example 1

Example - Permitted application: ABC Ltd has Rs. 5 crore in securities premium account. It utilises Rs. 2 crore for issuing fully paid bonus shares to existing shareholders. This is a permitted application under Section 52. Auditor confirms compliance.

### Example 2

Example - Non-permitted application: XYZ Ltd uses Rs. 1 crore from securities premium account to pay dividend to shareholders. This is NOT a permitted application under Section 52. Auditor must qualify the report and report this violation.

⚠️ Common exam mistakes

Treating securities premium as a free reserve available for dividend distribution - it is NOT
Forgetting that buy-back under Section 68 is now an explicitly permitted use of securities premium
Confusing 'writing off preliminary expenses' with general operating expenses - only specific items can be written off
Not verifying that bonus shares are issued out of 'unissued shares' (within authorised capital limit)

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

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'. 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.

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Securities Premium - Application & Audit (Section 52)

Worked example

⚠️ Common exam mistakes