Share Premium: Definition, Calculation, and Uses

What is Share Premium?

Share premium, also known as share capital in excess of par or additional paid-in capital, represents the excess amount paid by shareholders above the par value of the shares they purchase.

When a company issues shares at a price higher than their par value, the difference between the two amounts is recognized as share premium.

How is Share Premium Calculated?

The formula for calculating share premium is:

• Share Premium = Issue Price of Shares - Par Value of Shares

Uses of Share Premium

The funds held in the share premium account can only be used for specific purposes as defined by the company's constitution or relevant laws and regulations.

• Issue bonus shares to existing shareholders
• Write off preliminary expenses
• Redeem preference shares
• Finance the acquisition of another company
• Cover losses incurred by the company