Over-subscription, premium and shares for assets

Over-subscription: more shares are applied for than are offered. The company can reject some applications and refund their money, allot pro-rata (in proportion), or do both. On a pro-rata allotment, the excess application money is first used for the allotment money due; any surplus goes to calls in advance, or is refunded.

Under-subscription: fewer shares are applied for. The company allots only what was applied for, as long as it has received the minimum subscription.

Shares at a premium: the issue price is above the face value. The extra is credited to the Securities Premium account, shown under Reserves and Surplus, never in share capital. It may be used only for set purposes: issuing fully paid bonus shares, writing off preliminary expenses or the expenses and discount of an issue, the premium on redemption of preference shares or debentures, and buy-back of shares.

Shares at a discount (below face value) are not allowed under the Companies Act, 2013, except sweat equity shares given to employees.

Shares issued for assets (to a vendor instead of cash): Asset Dr. To Vendor; then Vendor Dr. To Share Capital (and Securities Premium). The number of shares = amount payable ÷ issue price.

Example: a machine bought for 2,20,000 is paid in ₹10 shares at a 10% premium. Issue price 11, so 2,20,000 ÷ 11 = 20,000 shares: capital 2,00,000 and premium 20,000.