Section 52 restricts securities premium use to bonus issue, expense write-off, issue cost, redemption premium, and buy-back.
Securities Premium Account: Uses Under Companies Act
Section 52 of the Companies Act, 2013 strictly regulates the utilization of amounts credited to the securities premium account. Only five purposes are permitted: issuing fully paid bonus shares, writing off preliminary expenses, writing off issue expenses, providing for premium payable on redemption of preference shares, and financing the buy-back of shares under Section 68.
Any diversion of securities premium for other purposes, including general working capital or dividend distribution, is prohibited and may attract regulatory action by the Registrar of Companies or penalties under the Act.
Implications for Practitioners
Corporate legal teams and auditors must ensure that securities premium funds are used strictly within the statutory framework. Misuse may trigger compounding proceedings or shareholder litigation. Proper documentation and board resolutions are essential for compliance.
