Share Premium
/ʃeə ˈpriːmiəm/
A Share premium is the amount paid by shareholders for company shares that exceeds the nominal (par) value of those shares.
A Share premium is the amount paid by shareholders for company shares that exceeds the nominal (par) value of those shares.
Share premium represents the extra money investors pay above a share's par value.
This excess amount gets recorded separately in the company's books and forms part of the shareholders' equity.
It shows the market value investors place on your business beyond the basic share price.
When you issue shares above their nominal value, the difference goes into a share premium account.
For example, if shares have a nominal value of £1 but sell for £10, £9 per share becomes share premium.
This money belongs to shareholders collectively and strengthens your company's financial position.
Share premium demonstrates investor confidence and provides crucial capital without creating debt.
It improves your balance sheet strength and gives you funds for growth whilst maintaining your company's equity structure.
This makes future fundraising easier and more attractive to potential investors.
Share premium must be recorded in a separate account and cannot be distributed as dividends like normal profits.
However, you can use it for specific purposes like issuing bonus shares, writing off company expenses, or covering share issue costs.
The relevant company registry requires proper documentation of these transactions.
Share premium directly reflects your company's perceived value above its basic share capital.
Higher premiums indicate stronger investor demand and market confidence.
This historical record helps establish valuation benchmarks for future investment rounds and demonstrates your company's growth trajectory.
You can utilise share premium for issuing fully paid bonus shares to existing shareholders, paying off preliminary expenses, or covering costs related to issuing shares or debentures.
These uses must follow proper legal procedures and maintain accurate accounting records.
Share premium remains part of shareholders' equity during normal business operations.
During acquisitions or company restructuring, it may be used according to legal requirements and shareholder agreements.
Proper documentation ensures compliance with regulations and protects shareholder interests throughout any corporate changes.
