Quick Summary
Share Premium represents the excess amount received when shares are issued above their nominal/face value.
Share Premium (also called Securities Premium) is the amount received by a company when it issues shares at a price higher than their face value (nominal value). It is recorded in a separate reserve called the Share Premium Account.
Calculation
Share Premium = Issue Price - Face Value
Example
A company issues shares with:
- Face Value: ₹10 per share
- Issue Price: ₹50 per share
- Number of Shares: 1,00,000
Share Premium per share = ₹50 - ₹10 = ₹40
Total Share Premium = 1,00,000 × ₹40 = ₹40,00,000
Share Premium Account
The Share Premium Account is shown under Reserves & Surplus in Shareholders' Equity. Under Companies Act, it can be used for:
- Issuing fully paid bonus shares
- Writing off preliminary expenses
- Writing off expenses of share issue
- Providing premium payable on redemption of preference shares
- Buyback of shares (with conditions)
Why Issue Shares at Premium?
- Company has strong financial position
- Good brand value and reputation
- High demand for shares
- Reflects accumulated reserves and goodwill
- Market price is above face value
Key Points
- Excess over face value at issue
- Credited to Share Premium Account
- Shown under Reserves & Surplus
- Cannot be distributed as dividend
- Can be used for bonus issues