Section 56 of the Income Tax Act prescribes issuance of shares at fair value. … All types of companies can issue their shares at premium. Shares at a premium at the time of incorporation. As per the provisions of Section 52 of the Companies Act, 2013 a company can issue shares at a premium, whether for cash or otherwise.
Share premium is generally considered as a capital receipt under Income-tax Act, 1961: Share issued at a premium by closely held companies subject to some exceptions are covered under Section 56 (vii(b)).
Issue of Prospectus, Receiving Applications, Allotment of Shares are three basic steps of the procedure of issuing the shares. The process of creating new shares is known as Allocation or allotment. Let us see the two types of shares of a company and the procedure for issue of shares that a company must follow.
Provisions of Section 56(2)(viib) says that when a private limited company issues share at a price which is more than its Face Value then consideration receives in excess of Fair Market Value (FMV) is taxable under the head “Income From Other Source”.
A company issues its shares at a premium when the price at which it sells the shares is higher than their par value. This is quite common, since the par value is typically set at a minimal value, such as $0.01 per share. The amount of the premium is the difference between the par value and the selling price.
Uses of Share Premium Account Funds
Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees or for issuing bonus shares to shareholders. Beyond selling shares above par, the share premium account can be credited if the government donates land to the company.
Procedure of Right Issue of Equity Share
- Send Notice of Board Meeting in writing to every director at his address registered with the company by hand delivery or by post or by electronic means. …
- Pass the Resolution in Board Meeting for Right issue.
What is Section 77 of Companies Act 2013?
Section 77 – It is the duty of every corporation creating charge in any such form, on payment of such fees and in such manner as might be prescribed, with the Registrar within 30 days of its creation.
Originally Answered: Can a company create more shares? Yes. The company can decide in its Annual General meeting if they want to issue more shares. In the course of time, the company may require more capital to fund its expenditure, the people on the board decide the means to raise capital which is required.
A company will need to issue at least some shares, so that one or more persons will be the shareholders of the company and entitled to exercise the rights needed to run the company (at a minimum, to appoint a director who can then manage the company).
Here are the steps to issue shares in a corporation:
- Decide how much capital to raise. …
- Decide the number of shares to be issued. …
- Decide corporation will be public or private. …
- Set value for each share. …
- Choose the type of stock. …
- Prepare a shareholder agreement. …
- Issue stock certificates.
Therefore, When a company issues shares at a premium, the premium amount will be received by it along with application money, allotment money, or calls.
Maximum limit of Premium on shares is – No limit.
Share premium is capital receipt and contributed as such by the shareholders. The amount of premium is neither ‘profit’ nor ‘gain’ of the company, it is capital receipt to be accounted for as share premium. This amount cannot be credited in the profit and loss account of the company.