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Company – Shares Issued at a Premium

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Malta Company – Shares Issued at a Premium

It is customary for the original subscribers of the shares to subscribe for the shares at a nominal or at par value (the consideration being paid in cash on in kind).  There in after however, it is not usual for shares to be allotted for a consideration higher than their par value – “at a premium”.  The reason for this may be various, but the typical scenario would be that the company has started trading and the market value of its shares, by far exceed the nominal value of the share.  By way of illustration, if the nominal value of the shares in the Company is EUR 1.00 but the true market value of each share is, regard being had to the value of the assets owned by the company, EUR 20, then the allotment of shares would still be at a nominal value of EUR 1.00 but issued at a premium of EUR 19 – representing the difference between the true market share and the nominal value of the share. The issuance of shares at a premium, may therefore be held to address an imbalance in the true value of the shares, which would otherwise be to the detriment of the original subscribers of the shares.
Article 114 of the Companies Act prescribes that when shares are issued at a premium (whether for cash or otherwise), a sum equal to the aggregate amount or value of the premiums on those shares is to be immediately paid up in full and transferred to the “share premium account”.  An exception to this rule is set forth by Article 114A of the Companies Act, based on group reconstruction relief.   This relief is however to be interpreted very restrictive in nature and only applies where the issuing company:

  • is a qualifying subsidiary of another company; and
  • allots shares either to the holding company or to another qualifying subsidiary of the holding company, in consideration for the transfer of the issuing company of non-cash assets of a company that is a member of the group of companies that comprises the holding company and all its qualifying subsidiaries.

In these circumstances, the issuing company is not required to transfer to a share premium account, any account in excess to the minimum presence value (the amount, if any, by which the base value for the consideration for the shares allotted exceeds the nominal value of the shares).

Another exception to the transfer of funds to the share premium account, is set forth by Article 114B of the Companies Act – takeover relief.  This applies when one company acquires the share capital of another company by issuing shares to the shareholder of the target company, provided that the following conditions are complied with:

  • the issuing company must secure at least an eighty per cent (80%) equity holding in another company; and
  • this holding must be secured pursuant to an arrangement providing for the allotment of equity securities in the issuing company on terms that the consideration for the allotted shares is to be provided either by the issue or transfer to the issuing company of equity securities in the other company or by the cancellation of any such shares not held by the issuing company.

The use of a share premium account also has the effect of restricting the registration fees payable to the Registrar of Companies.  As the registration fees are calculated on the authorized share capital, shares issued at premium, in lieu of their nominal value, make it possible not to increase the authorized share capital.  Likewise, since the fees for the filing of the annual return of the company, are calculated proportionate to the authorized share capital of the company, there may only be a recurring monetary saving to be made.

This notwithstanding, the creation of a share premium account is not a matter to be taken lightly and certainly should not be dictated solely by any monetary savings that may apply through the use of this account.  Restrictions apply on the permitted use of the share premium account, as follows:

  • The share premium account may be applied by the company in paying up unissued shares of the company to be issued to its members as fully paid bonus shares;
  • The share premium account may be applied by the company in writing off its preliminary expenses or the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;
  • The share premium account may also be used to providing for the premium payable on redemption of any of its redeemable preference shares or debentures.

It is also to be noted that there is no strict statutory obligation to issue shares at a premium when a premium may be obtained.  However, directors who short-sell the allotment of new shares, by not requesting subscribers to pay to the company the full price for the new allotment of shares, would be liable to compensate the company in damages for the premium.

For more thorough information about Malta Company – Shares Issued at a Premium, and bespoke advice, you are kindly requested to contact one of our officers. Contact us to initiate the incorporation of a Maltese registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com

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