Issue of Shares — At Par, at Premium and at Discount

When a company decides to raise share capital from the public, it follows a set procedure: inviting applications, allotting shares to successful applicants, and then making one or more calls to collect the remaining money. Shares may be issued at par (issue price equals face value), at a premium (issue price is higher than face value), or — only in the narrow situation the law permits — below face value.

The three stages of collection

1. Application — money received along with the application form, before any shares are allotted; kept in a separate Share Application Account until allotment is decided.
2. Allotment — the first amount due from an applicant once shares are actually allotted to them; any premium is usually, though not compulsorily, collected along with allotment.
3. Calls — one or more further demands (First Call, Second Call, Final Call, or a combined First and Final Call) made after allotment, until the full issue price has been collected.

Issue at premium — Section 52

When shares are issued at a price higher than their face value, the excess is credited to a separate Securities Premium Account, never to Share Capital — it is a capital receipt, not trading profit, and cannot be used to pay ordinary dividends. Section 52(2) of the Companies Act, 2013 restricts the uses of this account mainly to: issuing fully paid bonus shares; writing off preliminary expenses; writing off the expenses of, or the commission paid on, or the discount allowed on, any issue of shares or debentures of the company; providing for the premium payable on redemption of preference shares or debentures; and buying back the company's own shares.

Issue at discount — Section 53 …