Issue of shares, Bonus shares and Right shares
There are various ways by which shares can be
Normally shares are issued at their face value or
par value i.e at a price mentioned on the face of share certificate concerned.
There is no legal restrictions on issuing shares at par / face value.
When shares are issued at a price above the face or
nominal value, they are said to be issued at a premium. For example, a share
having the face value of Rs.10 is issued at Rs.12. Here, Rs.2 is the premium.
The amount of share premium has to be transferred to an account called the
‘Securities Premium Account’. This account is capital in nature and can only be
utilized for the purposes specified by the Act under Section 78 viz; Issue of
fully paid bonus shares to members of the company.
(i) To write off preliminary expenses.
(ii) To write off the expenses of issue, or
commission paid, or discount allowed, on issue of shares or debentures of the
(iii) To provide for the payment of premium on the
redemption of any redeemable preference shares or debentures of the company.
Thus, the Securities Premium Account cannot be
treated as a revenue reserve for distributing dividends. It can only be used
for the above mentioned purposes and also for buying back of securities
(section 77A). It must be noted that Security premium is not available for
distribution of dividend.
When the shares are issued at a price below the
face value they are said to be issued at a discount. For example, a share
having the face value of Rs 10 is issued at Rs 8. The companies act 2013,
prohibits the issue of shares at discount (Section 53), except sweat Equity
Under section 54 of the Companies Act 2013, Sweat
Equity Shares can be issued at Discount. Sweat Equity Shares means issue of
shares to employees or directors at a lower price for cash or other than Cash,
in lieu of providing know-how or making available rights in the nature of
intellectual property rights or any value additions.
A company may, if its Articles provide, capitalize
its profits by issuing fully-paid bonus shares. The issue of bonus shares by a
company is a common feature. In simple, Bonus share means to utilize the
company’s reserves and surpluses, issue of shares to existing shareholders
without taking any consideration is known as Bonus Shares. It can be issued by:
(i) Making partly paid up shares as fully paid
(ii) Issuing new shares
Right shares are the shares which are issued by the
company, with the aim of increasing the subscribed share capital of the company
by further issue, if it is authorized by its Articles. The right shares are
primarily issued to the existing equity shareholders through a letter of an
issue, on pro rata basis.