2 min read
Definition
Share premium arises when shares are issued for more than their nominal (par) value. The excess is credited to a share premium account, a capital reserve that sits within equity and is subject to statutory restrictions.
In plain terms
If a £1 share is sold for £10, the extra £9 is share premium. It reflects the market valuing the company above the notional face value of its shares.
Why it matters for your company
Unlike distributable profit, the share premium account can't simply be paid out as dividends — its uses are restricted by the Companies Act. It signals investor confidence and strengthens the balance sheet.
Related reading
Share capital
Share capital is the money a company raises by issuing shares to its shareholders — the equity foundation on…
Read →
Company Reserves, Retained Earnings and Dividends: A Director's Primer
Retained earnings accumulate every year the company makes a profit and are the source from which dividends…
Read →How to read a balance sheet
A balance sheet is a snapshot of what your company owns, what it owes, and what's left over for the…
Read →Share capital
Share capital is what shareholders paid for their shares — the invested equity that, with retained profit, a…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.