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As per Section 133 of the Companies Act, 2013, companies cannot use the securities premium for ____
- a)The premium payable on redemption of debentures
- b)Bonus shares
- c)Commission or expenses on issue of securities
- d)Loss on issue of debentures
Correct answer is option 'A'. Can you explain this answer?
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As per Section 133 of the Companies Act,2013, companies cannot use the...
Explanation:
Section 133 of the Companies Act, 2013 restricts companies from using the securities premium for certain purposes. One such purpose is the payment of the premium on redemption of debentures. Let's understand why this restriction is imposed.
- **What is securities premium?**
Securities premium is the amount received by a company over and above the face value of its shares or debentures when they are issued. It is the difference between the issue price and the face value of the securities.
- **Why is securities premium important?**
Companies can use the securities premium for various purposes, such as writing off preliminary expenses, issuing bonus shares, providing for the premium payable on redemption of debentures, and more. It is a reserve that can be utilized to meet certain financial needs of the company.
- **Why can't securities premium be used for the premium payable on redemption of debentures?**
The premium payable on redemption of debentures is the amount that the company agrees to pay to the debenture holders when the debentures are redeemed or repaid. This premium is an expense for the company and needs to be funded separately.
The restriction imposed by Section 133 of the Companies Act, 2013 is to ensure that the securities premium is not used for this purpose. The rationale behind this restriction is as follows:
1. **Maintaining the principle of capital maintenance:** The concept of capital maintenance states that the company should maintain its capital intact and not distribute it to the shareholders. By restricting the use of securities premium for the premium payable on redemption of debentures, the Act ensures that the company does not distribute its capital to the debenture holders.
2. **Ensuring proper utilization of funds:** The securities premium is a reserve that is built up by the company through the issuance of shares or debentures. This reserve is meant to be utilized for specific purposes, such as issuing bonus shares or writing off expenses. By restricting the use of securities premium for the premium payable on redemption of debentures, the Act ensures that the funds are utilized in a proper and planned manner.
3. **Protecting the interests of debenture holders:** By prohibiting the use of securities premium for the premium payable on redemption of debentures, the Act ensures that the company does not compromise the financial security of the debenture holders. The premium payable on redemption is an obligation of the company towards the debenture holders, and it should be funded separately to fulfill this obligation.
In conclusion, the restriction imposed by Section 133 of the Companies Act, 2013 prohibits companies from using the securities premium for the premium payable on redemption of debentures. This restriction is in line with the principles of capital maintenance, proper fund utilization, and protection of debenture holders' interests.
Section 133 of the Companies Act, 2013 restricts companies from using the securities premium for certain purposes. One such purpose is the payment of the premium on redemption of debentures. Let's understand why this restriction is imposed.
- **What is securities premium?**
Securities premium is the amount received by a company over and above the face value of its shares or debentures when they are issued. It is the difference between the issue price and the face value of the securities.
- **Why is securities premium important?**
Companies can use the securities premium for various purposes, such as writing off preliminary expenses, issuing bonus shares, providing for the premium payable on redemption of debentures, and more. It is a reserve that can be utilized to meet certain financial needs of the company.
- **Why can't securities premium be used for the premium payable on redemption of debentures?**
The premium payable on redemption of debentures is the amount that the company agrees to pay to the debenture holders when the debentures are redeemed or repaid. This premium is an expense for the company and needs to be funded separately.
The restriction imposed by Section 133 of the Companies Act, 2013 is to ensure that the securities premium is not used for this purpose. The rationale behind this restriction is as follows:
1. **Maintaining the principle of capital maintenance:** The concept of capital maintenance states that the company should maintain its capital intact and not distribute it to the shareholders. By restricting the use of securities premium for the premium payable on redemption of debentures, the Act ensures that the company does not distribute its capital to the debenture holders.
2. **Ensuring proper utilization of funds:** The securities premium is a reserve that is built up by the company through the issuance of shares or debentures. This reserve is meant to be utilized for specific purposes, such as issuing bonus shares or writing off expenses. By restricting the use of securities premium for the premium payable on redemption of debentures, the Act ensures that the funds are utilized in a proper and planned manner.
3. **Protecting the interests of debenture holders:** By prohibiting the use of securities premium for the premium payable on redemption of debentures, the Act ensures that the company does not compromise the financial security of the debenture holders. The premium payable on redemption is an obligation of the company towards the debenture holders, and it should be funded separately to fulfill this obligation.
In conclusion, the restriction imposed by Section 133 of the Companies Act, 2013 prohibits companies from using the securities premium for the premium payable on redemption of debentures. This restriction is in line with the principles of capital maintenance, proper fund utilization, and protection of debenture holders' interests.
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As per Section 133 of the Companies Act,2013, companies cannot use the securitiespremium for ____a)The premium payable on redemption ofdebenturesb)Bonus sharesc)Commission or expenses on issue of securitiesd)Loss on issue of debenturesCorrect answer is option 'A'. Can you explain this answer?
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