what is share premium

A share premium is the amount of money that a company receives for its shares over and above their nominal value. It is the difference between the par value of a companys shares and the total amount of money the company receives for shares recently issued. The share premium account is typically listed on a companys balance sheet and is included in the shareholders equity section. It is a reserve account whose funds cannot be used for just any purpose, but only for purposes that have been established in the companys bylaws. The share premium account is credited for money paid, or promised to be paid, by a shareholder for a share. The funds held in a share premium account are non-distributable reserves, meaning that the money cannot be treated as profit to be used for general purposes, such as paying dividends to shareholders. Instead, share premium funds can only be used for a very limited range of transactions, such as paying expenses related to the issuing of shares (e.g. underwriting costs) and issuing fully paid bonus shares to existing shareholders.