What is share premium

Share premium is income received from the difference between the market and par value of securities when they are placed. In other words, this is the excess of the sale price over par.

Features of share premium

Share premium, along with exchange rate differences and differences from the revaluation of fixed assets, is included in additional paid-in capital. The latter represents the amount of the revaluation of non-current assets and relates to the company's own assets.

Share premium is generated through the placement of securities, which can be private and public. In the first case, shares are sold among a narrow circle of well-known investors, in the second - on the free market, to everyone.

Sometimes the concept of share premium is also used in relation to LLCs, in which case it represents the difference between the cost of shares with an increase in the authorized capital and their nominal price.

It can be formed both as a result of an initial public offering and an additional issue of shares with an increase in the authorized capital.

Shareholding income can only be received by joint-stock companies, because only they have the opportunity to issue securities (shares). The issue of securities is one of the sources of obtaining financial resources that are attracted for solving statistical goals.

Share premium is considered only as additional capital, it is not allowed to spend it on consumption needs. He goes to the reserve fund of the company or increases the amount of profit.