Issue of shares at a premium and at discount6 min read

By- Komal Shah


The term capital has sort of meanings. It’s going to mean one thing to an economist, one to an accountant, while another to a businessman or a lawyer. A layman views capital because of the money, which a corporation has raised by the issue of its share. It uses this money to satisfy its requirements by way of acquiring business premises and stock in trade, which are called the fixed capital and therefore the circulating capital respectively.

In Company Law, the word “Capital” means the share capital of the corporate. There are differing types of Share Capital during a Company. a number of them are issued capital, subscribed capital, called up capital, paid-up capital, etc. In that case, we also got to understand the meaning of share too.

According to Section 2(84) of the businesses Act,2013, it defines a share as “a share within the share capital of a corporation, and includes stock except where a distinction between stock and shares is expressed or implied”. So, we will say that a share isn’t a sum of cash but a bundle of rights and liabilities; it’s an interest measured by a sum of cash. These rights and liabilities are regulated by the articles of the corporate.

In India, share is considered goods.

A Limited Company  may issue the shares on following different terms.

  1. Issue of Shares for Consideration aside from cash or for cash or on capitalization of reserves.
  2. Issue of Shares at par i.e. at face value or at par value.
  3. Issue of Shares at Premium i.e. at quite face value.
  4. Issue of Shares at Discount i.e. at but the face value.
    • Issue of shares at Premium
    • Issue of shares at discount.

Issue of shares at premium

Section 52(1) states that when a corporation issues shares at a premium, whether for cash or otherwise, a sum adequate to an aggregate amount of the premium received on those shares shall be transferred to a “securities premium account” and therefore the provisions of this act concerning the reduction of the share capital of a corporation shall, except as provided during this section shall apply as if the securities premium account were the paid-up share capital of the corporate.

When the shares are issued at a price above the face value of the shares then it’s called shares issued at a premium. the quantity of premium is about by the board of Directors as per the guidelines issued by SEBI. Please note that the Securities Premium could also be a profit to the company, but it isn’t a revenue profit, it’s treated as Capital Profit, which can be utilized just for the subsequent purposes:  Issue of fully paid bonus shares to the prevailing shareholders.

  • Writing off the preliminary expenses of the corporate.
  •  Writing off the expenses of issue or the commission paid or discount allowed on any issue of shares/debentures.
  • Providing the premium payable on redemption of preferred stock or debentures. the corporate can utilize the security Premium for the opposite purpose only on obtaining the sanction of the court.
  • When the corporate decides to issue shares at a price above the par value or face value we call it shares issued at a premium. it’s quite common practice especially when the company features an excellent diary and powerful financial performances and standing within the market.

For example: So say the face value of a share is Rs 100/- and therefore the company issues it at Rs 110/-. The share is claimed to possess been issued at a tenth premium. The premium won’t make an area of the Share Capital account but is getting to be reflected during a special account mentioned because of the Securities Premium Account. Now, this amount of premium is often called up by the company at any given time, i.e. with any call. the overall norm is to collect the premium with either allotment or application money, rarely with call money.

The premium amount as we discussed is credited to the Securities Premium Account.

This account is found under the heading of Reserves and Surplus on the liabilities side of Now consistent with the businesses Act 2013, there are some laws about the use of the Securities Premium Account. It states the precise purposes that this balance could even be used. Therefore the account can only be used for such specific purposes and no other purpose.

  • To issue fully paid-up bonus shares to its existing shareholders. However, you can’t exceed the limit of the unissued share capital of the corporate.
  •  Securities Premium Account are often used for writing off any preliminary expenses of the corporate.
  •  to write down off expenses of issue of shares and debentures, like commission paid or discount given on the difficulty of shares.
  • The balance also can be wont to provide for the premium that’s payable on the redemption of debentures or of preferred stock of the corporate and eventually, it is often utilized by the corporate to shop for back its own shares,
  •  the Balance Sheet.

Where a Company issues share at a premium, even though a consideration may be other than cash, a sum equal to the amount or value of the premium must be transferred to the securities premium account. ( Head (Henry) & Co. ltd v. Ropner Holding ltd (1951).


Question of law

Can the shares be issued  at Discount ?

Issue of shares at discount Section 53 states that except as provided in section 54 (i.e issue of sweat equity shares), a company shall not issue shares at discount. Any share issued by a corporation at a reduced price shall be void. When a corporation contravenes the provisions of this section, the corporate shall be punishable with fine which shall not be but 1 lakh rupees but which can extend to five lakh rupees and each officer who is in default shall be punishable with imprisonment for a term which can reach six months or with fine which shall not be less than one lakh rupees but which may extend to 5 lakh rupees. The companies can issue the shares at a reduction subject to the subsequent conditions:

  • The issue must be of a class of shares already issued.
  • Not less than 1 year has at the date of issue elapsed since the date on which the company became entitled to commence business.
  • the difficulty at a reduction is permitted by a resolution gone by the corporate within the general meeting & sanctioned by the corporate law board.
  • The maximum rate of discount must not exceed 10% or such rate as the company law board may permit.
  • The shares to be issued at a discount must be issued within two months of the sanction by the company law board or within such extended time as the company law board may allow.
  • So, in every Company, the Issue of Shares at Discount is prohibited unless given some exemptions.


A company can issue shares in many different ways. Hence a company can issue shares at a premium and at discount and that profits a Company in many ways. All the types of share capital is kind of a profit to the Company. Companies Act, 2013 has mentioned many provisions for shares and share capital and is made for the benefits of the Company.

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