A company can issue its shares either at par, at a premium or even at a discount. The shares will be at par is when the shares are sold at their nominal value. Shares sold at a premium cost more than their nominal value, and the amount in excess of the face value is the premium.
Can share be issued at a premium and at a discount?
When the shares are issued at a price higher than the nominal value of the shares then it is called as shares issued at a premium. Writing off the expenses of issue or the commission paid or discount allowed on any issue of shares / debentures. …
When can shares be issued at a discount?
ADVERTISEMENTS: When Shares are issued at a price lower than their face value, they are said to have been issued at a discount. For example, if a share of Rs 100 is issued at Rs 95, then Rs 5 (i.e. Rs 100—95) is the amount of discount.
What is par value and premium?
In other words, the price you pay for a new bond (its original price) is always fixed and is called the par value. A bond becomes “premium” or “discount” once it begins trading on the market. New bonds are sold on the “primary market” and existing bonds are sold on the “secondary market.”
What are the securities issued at discount and redeemed at par?
Zero Coupon bonds :
Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. These were issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95 and 1995-96 respectively. The key features of these securities are: They are issued at a discount to the face value.
What is premium on issue of share?
When shares are issued at a price higher than the face value, they are said to be issued at a premium. Thus, the excess of issue price over the face value is the amount of premium. For example, if a share of Rs. 10 is issued at Rs. … the premium on issue of shares must not be treated as revenue profits.
Why is issuing shares at discount illegal?
Discounted prices may be offered when company is not able to pay its debts and offering it share to its creditors. Company Act 2013 strictly prohibited the companies to issue shares at discounted price. It invites penalty and imprisonment for directors. … So never think of discounted price.
Which kind of shares can be issued at discount?
Also, debentures and bonds are allowed to be issued at discount as only shares apart from sweat equity shares is allowed for discount.
Can be issued at discount?
It clearly prohibits the issue of shares at discount as it states in its clause (2) that any share (which means either equity share or preference share) issued by a company at a discounted price shall be void.
What is the maximum limit of premium on shares?
When a share is issued at more than its nominal value it is called issue of shares at premium. There is no limit on the amount of premium.
What is the purpose of share premium?
The share premium account is usually utilized to pay off equity expenses, which include underwriter fees. The account can also be used in the issuance of bonus shares and for costs or expenses related to this issuance.
Why are shares sold at a premium?
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. If shares do not have a par value, then there is no premium. …