Question

write a short notes on : a) over subscription , b) issue of shares at premium

Answer 1

a) over subscription :- A situation in which investors show so much interest in a new issue of a security that demand exceeds supply. Before a new issue, underwriters canvass potential investors, who may or may not book an order to buy a portion the new issue. If investors order more sharesthan there are shares being issued, the security is said to be oversubscribed. This may affect the price when the security is actually issued.

b) issue of shares at premium :- When shares are issued at a price higher than the face value (also called par value or nominal value), it is called an issue of shares at a premium. Excess of issue price over face value is the amount of premium; it is a capital profit for the company and the amount so earned has to be credited to a separate account called Securities Premium Account.

There are no restrictions on issue of shares at a premium and the power to issue shares at a premium need not be taken in the Articles of Association. But there are restrictions on the ways securities premium can be used.