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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Kaveri Components Ltd. issued 10,000 equity shares of Rs 10 each at a premium of Rs 5 per share. The company wants to use part of the securities premium account to write off the preliminary expenses incurred at incorporation. Which statement is correct under the Companies Act, 2013?

Securities premium can be applied to write off preliminary expenses because this is one of the purposes expressly permitted by the Companies Act, 2013. It cannot be used for dividends, and neither Registrar approval nor a restriction to bonus shares applies.

  1. ASecurities premium may be applied for writing off preliminary expenses of the companyCorrect
  2. BSecurities premium can be used only for paying dividends to equity shareholders
  3. CSecurities premium cannot be applied for any purpose except bonus shares
  4. DSecurities premium may be used only with prior approval of the Registrar of Companies

Explanation

The Act lists the permitted uses of the securities premium account: issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses, commission or discount on issue of shares or debentures, providing for the premium payable on redemption of redeemable preference shares or debentures, and buy-back of shares. Writing off preliminary expenses is expressly permitted. It cannot be used to pay dividends, and Registrar approval is not required.

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