Question

Describe the purposes for which a company can use ‘Securities Premium Account’.

Answer 1

Securities premium account can be used only for the following four purposes as laid down by Section 78 of the Companies Act 1956:

(i) To issue fully paid bonus shares to an extent not exceeding unissued share capital of the company.

(ii) To write-off preliminary expenses of the company.

(iii) To write-off the expenses of, or commission paid, or discount allowed on any of the shares or debentures of the company.

(iv) To pay premium on the redemption of preference shares or debentures of the company.