Issue Of Shares Introduction And Issue At Par And Issue Of Shares At Premium
Issue Of Shares Introduction What is the meaning of issue of shares?
ISSUE OF SHARES AT PAR :
When the company issues its shares at a price equal to the face value of the shares issued for subscription, it is termed as “issue of shares at par’ For example a share having a face value of Rs. 100, suppose it is issued to public at a price of Rs. 100.
ISSUE OF SHARES AT PREMIUM :
When the company issues it’s shares at a price above its face value / par value , it is termed as ‘ issue of shares at premium ‘. For example a share having a face value of Rs.100, suppose it is issued to public at a price of Rs. 130. Here the difference between face value and issue price is called as a ‘share premium ‘ .
Below are the some important points relating to the premium :
- There is no maximum limit on the amount of share premium to be collected, as per companies Act.
- Share premium is a capital profit to the company, it is shown on the libialities side of balance sheet under the head “ Reserve & Surplus “.
- As share premium is a capital profit , it can not be used for distribution of dividend. It can be used by the company for the following purposes.
a, To issue the bonus shares to existing shareholders.
b, To write – off the following losses / fictitious assets :
- Prelimanary expenses.
- Discount of issue of shares and debentures.
- Share broken / underwriters commission and other capital issue expenses.
c, Amount of share premium can be used to make a provision for premium payable on the redemption of redeemable preference shares and debentures.
- Company can collect the amount of share premium with the amount of any installments In general it is collected with share allotment money.