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

Kaveri Foods Ltd. issued 1,00,000 equity shares of Rs 10 each at a premium of Rs 5 per share. The company wants to utilise the securities premium account. Which of the following is a purpose for which the securities premium may be applied under the Companies Act, 2013?

Securities premium can be used to write off preliminary expenses, because that is one of the purposes expressly permitted by the Companies Act. It cannot be used to pay dividends, absorb trading losses or pay directors, since these fall outside the statutory list of permitted applications.

  1. APaying dividend to equity shareholders in the current year
  2. BWriting off the preliminary expenses of the companyCorrect
  3. CWriting off losses from trading in the current year
  4. DPaying the ordinary remuneration of directors

Explanation

Securities premium may be applied only for the listed purposes: issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses, commission or discount on issue of securities or debentures, providing for premium on redemption of preference shares or debentures, and buy-back. Dividend and trading losses are not permitted uses.

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