Consider the following statements:
1. Issue of shares at a premium represents a Capital Profit for a company
2. Issue of shares at a discount is not allowed in India
Which among the above is / are correct?

Answer: [A] Only 1

The first statement is correct while second is incorrect. A company may issue shares at a discount i.e. at a value below its par value under certain conditions such as

  • The shares must be of a class already issued. A new class of shares cannot be issued at discount.
  • Issue of the shares at discount must be authorized by resolution passed in the general meeting of company and sanctioned by the company law board.
  • The resolution must also specify the maximum rate of discount at which the shares are to be issued.
  • Not less than one year has elapsed from the date on which the company was entitled to commence the business.
  • The shares to be issued at discount must issued within 2 months after the date on which issue is sanctioned by the company law board or within extended as may be allowed by the Company Law Board.

Any company could not offer the shares at discount when:

  • It is a new company
  • It is a new class of shares even though of an old company
  • The discount on issue of shares is treated as a loss of capital nature.

This question is a part of GKToday's Integrated IAS General Studies Module