1. Introduction : A public limited company invites people to purchase shares in-order to raise capital. Normally, shares are issued at its face value. A company can issue share at a face value or at a premium or a discount. After taldng into consideration, its own stability; the condition of share market and money market and other related matters. However, the company has to observe the provisions of the Companies Act regarding this.
2. Ways to Issue Share : The company can issue share in following three ways: (i) Issue shares of face value (ii) Issue shares at premium (iii) Issue shares at discount.
(1) Issue Shares at par or Face value : The face value of share is mentioned in the capital clause of Memorandum of Association. When company receives the same amount from investors then it is said to issue share at par. This amount can be called on instalment also.
For eg. The share price of company A is 10 and company issue share at 10 then it is said the company have issued their share at par or facevalue-Shareholders are not responsible to pay more than the face value of share.
(2) Issue Shares at Premium : When the company issueiãres at the amount more than the face value or par value, then it is said to be issued share at premium.
For eg. The face value of share of ‘Company A’ is 10. When issued for 12 then 2 is termed as the premium charged. Normally, the company with good prestige and well developed companies issue share at a premium. Share capital is a gain for the company. The amount of security premium can be utiised by the company as under:
(i) To issue bonus share on fully paid up shares.
(ii) To write off preliminary expenses of the company.
(iii) To write off the amount of redeemed premium if debentures are to be redeemed with premium. (iv) Expenses made during the issue of shares or debentures by the company, to write off discount or under writing commission or brokerage expenses.
(3) Issue Share at Discount : When there prevails shortage of money in the stock market and finance market, the situation of company is not satisfactory and needs the capital to attract the investors company issue the share at the price lower than its face value or par. It is said to have issued share at discount. Now no company can issue shares at discount.