Utilization of Share Premium

Premium payable on redemption of preference share is the correct answer. The share premium is the amount that is received by a company over and above the face value of the shares. It is a part of the total share capital of the company. The share premium can be utilized for various purposes as allowed by the Companies Act, 2013. Some of the purposes are:

1. For the issue of fully paid bonus shares
2. For writing off the preliminary expenses of the company
3. For providing for the premium payable on redemption of preference shares or debentures

Premium Payable on Redemption of Preference Shares

When a company issues preference shares, it may include an option for the redemption of these shares after a certain period of time. When the company decides to redeem these shares, it has to pay a premium to the holders of these shares. The premium is the amount that is paid to the shareholders over and above the face value of the shares. This premium is paid as compensation for the shareholders giving up their preference shares before the maturity date.

The premium payable on redemption of preference shares can be paid out of the share premium account. This is because the share premium is a part of the share capital of the company and can be used for the payment of such premiums. However, the company cannot use the share premium for any other purpose unless it has been approved by the shareholders in a general meeting.

Conclusion

Thus, the share premium can be utilized for various purposes, but one of the important uses is for the payment of the premium payable on redemption of preference shares. This is because it is a part of the share capital of the company and can be used for the payment of such premiums.