Securities premium can be utilized for:
(A) Writing of preliminary expenses.
(B) Issue of bonus share.
(C) Payment of dividends.
(D) Buy back of shares.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (D) only
The Securities Premium collected on shares is capital in nature. The law allows it to be used only for a few listed purposes and never for distributing profit.
(A) Writing of preliminary expenses. Correct. Securities premium may be used to write off the preliminary expenses of the company.
(B) Issue of bonus share. Correct. It may be used to issue fully paid bonus shares to the members.
(C) Payment of dividends. Incorrect. Dividend is paid out of profits; paying it out of securities premium would return capital to members, which is not allowed.
(D) Buy back of shares. Correct. A company may buy back its own shares out of free reserves, securities premium or the proceeds of a fresh issue.
NCERT (2026-27 edition):
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