Securities Premium Account
According to sub-section (1) of section 52 of the Companies Act,2013, where a company issues shares at a premium, the amount of premium should be transferred to a separate account to be called ‘the securities premium account’. The provisions of this Act regarding reduction of capital also apply to securities premium account. However, as per sub-section (2) of section 52 of Companies Act, 2013, the securities premium may be applied for the following purposes:
(a) issuing fully paid bonus securities;
(b) writing off the preliminary expenses;
(c) writing off the expenses of, or the commission paid or discount allowed on, any issue of securities or debentures; or
(d) providing for the premium payable on the redemption of any redeemable preference securities or debentures; or
(e) for the purchases of its own shares or other securities under section 68 of Companies Act, 2013.
As per sub-section (3) of section 52, the security premium account may be applied by such company, as may be prescribed and whose financial statement comply with the accounting standards prescribed for such class of companies under section 13312 of Companies Act, 2013.
(a) in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or
(c) for the purchases of its own shares or other securities under section 68.
A banking company has to report to the RBI any appropriations made from the securities premium account. Such an appropriation can be only for the purposes described above or in accordance with the provisions governing reduction of share capital by a company.