Explain:
(i) The purpose of a share premium account
(ii) Whether Fin can reclaim his premium payment from Irk plc
(i) A company may issue shares for a price in excess of the nominal value of those shares. The excess is called the 'share premium' and must be credited to a share premium account. The general rule is that reduction of the share premium account is subject to the same restrictions as reduction of share capital. No part of the account can be distributed as dividend. The account can be used to pay up fully paid shares under a bonus issue since this operation simply converts one form of fixed capital into another. It can also be used to pay issue expenses and commissions in respect of a new share issue.
(ii) Applying the above to the present scenario, it is apparent that Irk plc cannot repay in cash any amount of the share premium account to Fin or any other shareholders.
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