A company may issue shares at a premium i.e. at a value above its par value. The following conditions must be satisfied in connection with the issue of shares at a premium:-
1.The amount of premium must be transfered to an account to be called share premium account. The provisions of this Act relating to the reduction of share capital of the company will apply as if the share account premium account were paid up share capital of the company.
2.Share premium account can be used only for the following purposes :-
1. 1.In issuing fully paid bonus shares to members.
2.In Writing off preliminary expenses of the company.
3.In writing off public issue expenses such as underwriting commission, advertisement expenses, etc
4.In providing for the premium payable paid on redemption of any redeemable preference shares or debentures.
5.In buying back its shares