The Share premium
By “premium” is meant the difference between the issue price of the share and its nominal value. When a company is first incorporated the issue price of its shares will probably be the same as their nominal value and so there would be no share premium. If the company does well the market value of its shares will increase, but not the nominal value. The price of any new shares issued will be approximately their market value.
The companies act states that “where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the premiums on those shares shall be transferred to the share premium account”.
A share premium account is an account into which sums received as payment for shares in excess of their nominal value must be placed.
The share premium account cannot be distributed as dividend under any circumstances.
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