Terms of Issue of Shares: At Par, At Premium and At Discount

Whatever method a company uses to issue its shares, the price it actually charges relative to the share's face value falls into one of three categories, and Secretarial Practice treats each with its own set of statutory consequences.

A share is issued at par when its issue price is exactly equal to its face value — the buyer pays no more and no less than the amount printed on the share itself. This is the ordinary basis on which a newly formed company, without yet having established a track record in the market, issues its first shares.

A share is issued at a premium when its issue price exceeds its face value — something a company can typically do only once it has built a reputation and a record of sound performance that makes investors willing to pay more than face value for a stake in it. Section 52 governs what happens to this excess: the amount received as premium must be transferred to a separate account called the Securities Premium Account, and that account, though shown among the company's reserves, cannot be freely spent — it may be applied only for a closed list of purposes, namely: issuing fully paid bonus shares to members; writing off the company's preliminary expenses; writing off the expenses of, or the commission paid on, or the discount allowed on, any issue of the company's shares or debentures; providing for the premium payable on the redemption of preference shares or debentures; and, subject to conditions, buying back the company's own shares or other securities under Section 68. …