Q.Explain the provisions of Section 52 of the Companies Act, 2013 relating to issue of shares at a premium, and the purposes for which the securities premium account may be used.

A share premium strengthens the company's capital, but the law is strict about treating it as capital, not as spendable profit.

A share is issued at a premium when the price the company charges an applicant for it exceeds the share's nominal (face) value stated in the Memorandum of Association — for example, a share of face value ₹10 issued to the public at ₹15 carries a premium of ₹5. Companies commonly issue shares at a premium once they are well established and their real worth, reflected in accumulated profits, reserves, and market reputation, genuinely exceeds the nominal value fixed years earlier when the company was formed; the premium lets the company raise proportionately more capital per share issued, reflecting that greater real worth.

Section 52 of the Companies Act, 2013 permits this, but it does not allow the company to treat the premium amount as if it were ordinary sale proceeds or trading income. Instead, Section 52(1) requires the company to transfer the whole amount received as premium, on each share on which it is charged, to a separate account called the securities premium account, and this account is treated, for most purposes, on the same footing as the company's paid-up share capital rather than as distributable profit — it cannot, for instance, ordinarily be used to pay a cash dividend to shareholders.

Section 52(2) then narrows down precisely what the securities premium account may be applied to, and this closed list is the part of the provision most relevant to a Secretarial Practice exam:

1. issuing fully paid bonus shares to the members of the company;
2. writing off the preliminary expenses of the company (the costs of incorporation and initial formation);
3. writing off the expenses of, or the commission paid, or the discount allowed on, any issue of shares or debentures of the company;
4. providing for the premium payable on the redemption of redeemable preference shares or of debentures of the company; and
5. for a prescribed class of companies whose financial statements comply with the applicable accounting standards, financing the purchase of its own shares or other specified securities under a buy-back carried out in accordance with Section 68. The company cannot apply the securities premium account to any purpose outside this list — it is not a general reserve the Board may use at its discretion for whatever purpose seems convenient at the time. …