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

Nilgiri Tea Estates Ltd, a public company, has issued equity shares of Rs 10 each. Its articles are silent on the matter. The board wants to issue further shares to the public at a price of Rs 15 per share. Under the Companies Act, 2013, what is the legal position regarding issue of shares at a premium?

A company can issue shares at a premium without special authority in its articles, and the premium amount must be transferred to the securities premium account. That account can be applied only for statutory purposes, such as issuing bonus shares or writing off preliminary expenses, and not for paying dividend.

  1. AA company may issue shares at a premium, and the premium must be credited to the securities premium accountCorrect
  2. BA company may issue shares at a premium only if the articles expressly authorise it
  3. CA company may issue shares at a premium, and the premium can be freely distributed as dividend
  4. DA company cannot issue shares at a premium unless SEBI approves it in every case

Explanation

Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of premium must be transferred to the securities premium account. No express authority in the articles is needed. The premium can only be used for purposes listed in the Act, so it cannot be distributed as dividend.

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