Legal provisions for utilization of security premium?

Answer 1

Section 78 - Application of securities premium

After the coming into force of the Companies Act, 1956 securities premium could not be used otherwise than for the specific purpose mentioned in section 78(2) of the Act. The object of this section is to lay down specifically how the premiums collected on the issue of shares should be utilized. Section 78 (2), which begins with a non-obstinate clause, enacts the exceptions from the general rule mandated by Section 78 (1) and enables a company to apply the securities premium account for the following purposes:-

- in paying up its unissued securities, to be issued to its members as fully paid bonus shares;

- in writing off its preliminary expenses;

- in writing off the expenses of or the commission paid or discount allowed on any issue of securities or debentures of the company or

- in providing for the premium payable on the redemption of any redeemable preference securities or any debentures of the company.

- Purchase of its own shares or other specified securities [Section 77A(1)(iii)]