Share Capital vs. Share Premium: What's the Difference?
Edited by Janet White || By Harlon Moss || Published on December 7, 2023
Share capital is the money raised by a company through the issuance of shares, while share premium is the extra amount paid by shareholders over the nominal value of the shares.
Key Differences
Share capital represents the funds that a company raises by selling its shares at face value or par value to investors. Share premium, on the other hand, is the additional amount paid by shareholders over and above the nominal value of the shares.
The share capital of a company is typically documented at the time of its establishment and can be seen on the company’s balance sheet. While, share premium is accounted for separately and often forms part of the shareholders' equity but is not part of the share capital.
Share capital is fundamental to a company’s financial structure and is used to determine the company’s ownership structure. However, share premium is used for various purposes such as issuing bonus shares, writing off expenses or losses, or for legal requirements.
Changes in share capital can occur with further share issuances or buybacks. Meanwhile, share premium remains constant unless additional shares are issued at a price above their nominal value.
Share capital indicates the initial investment in the company made by the shareholders. In contrast, share premium is a reflection of the confidence of investors in the company, often indicating the market’s perception of the company’s value beyond its face
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Comparison Chart
Definition
Money raised by issuing shares at nominal value
Extra amount paid over the nominal value of shares
Documentation
Documented at establishment, shown on balance sheet
Accounted for separately, part of shareholders' equity
Use
Determines company’s ownership structure
For issuing bonus shares, writing off expenses
Changes
Occurs with further issuances or buybacks
Changes with issuance of shares above nominal value
Indication
Initial investment by shareholders
Investors’ confidence and market perception
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Share Capital and Share Premium Definitions
Share Capital
Documented in the company’s financial statements.
The balance sheet shows a share capital of $500,000.
Share Premium
Represents the additional confidence investors have in the company.
The high share premium reflects strong market belief in the company's potential.
Share Capital
Can be altered by issuing more shares or buybacks.
The company decided to increase its share capital by issuing new shares.
Share Premium
Can increase with the issuance of shares above their nominal value.
The latest funding round significantly increased the company's share premium.
Share Capital
A measure of a company’s funding raised through equity.
The start-up raised its share capital to finance new projects.
Share Premium
Often used for statutory reserves or issuing bonus shares.
The share premium was used to issue bonus shares to existing shareholders.
Share Capital
The total amount of money raised through the sale of shares at par value.
The company's share capital was set at $1 million at incorporation.
Share Premium
The amount received over the par value of shares when they are issued.
The company issued shares at a premium, raising its share premium account.
Share Capital
Represents the initial investment made by the shareholders.
Increasing the share capital can dilute existing ownership percentages.
Share Premium
A part of shareholders' equity but not of share capital.
Their balance sheet shows a separate entry for share premium.
FAQs
What is share capital?
Share capital is the money a company raises by issuing shares of stock.
How is share capital shown on a balance sheet?
It's recorded under the shareholders' equity section.
Can share capital be reduced?
Yes, through buybacks or capital reduction strategies.
What is authorized share capital?
The maximum amount of share capital a company is allowed to issue, as per its articles of association.
What are the types of share capital?
Common types include authorized, issued, subscribed, paid-up, and called-up capital.
Can share capital be increased?
Yes, through issuing more shares or rights issues.
Is share premium refundable?
No, it's not refundable to shareholders.
What is share premium?
It's the extra amount over the nominal value of shares, paid by shareholders when the shares are first issued.
How does share capital impact shareholders?
It represents shareholders' stake in the company.
What is paid-up share capital?
The portion of issued capital that shareholders have paid for.
Does share capital pay dividends?
Dividends are paid out of profits, but share capital can affect the dividend per share.
What does a high share premium indicate?
It indicates strong investor confidence in the company.
How is share premium used by a company?
It can be used for issuing bonus shares, writing off expenses or losses, or providing for premium on redemption of debentures or shares.
Is share capital returned to investors?
Not typically; it remains invested in the company until liquidation or share repurchase.
How is share premium recorded?
It's recorded in the share premium account under shareholders' equity.
How does share premium affect share capital?
It doesn't directly affect share capital but adds to the company's overall equity.
What happens to share premium in a buyback?
It can be used to fund the buyback of shares.
Can share premium be distributed as dividends?
Usually not; it's often used for purposes like writing off incurred expenses or issuing bonus shares.
Is share premium common?
Yes, especially when shares are issued at a price higher than their nominal value.
Can share premium be negative?
No, it cannot be negative.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
