Loading the player...
A:

A share premium account shows up in the shareholders’ equity portion of the balance sheet. The share premium account represents the difference between the par value of the shares issued and the subscription or issue price. For example, say a company issued 1,000 shares at $10 par value per share. The company actually received $15 per share as the subscription price. The difference between the par value and the subscription amount is the share premium. Thus, the additional $5,000 is placed in the share premium account.

The value of a share premium account likely changes over time as a company issues new shares at the market value as opposed to the par value. The funds in the share premium account cannot be distributed as dividends and may only be used for purposes outlined in the company’s bylaws or other governing documents. Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees, or for issuing bonus shares to shareholders.

The shareholders’ equity portion of the balance sheet represents the initial amount of money invested in the business. The shareholders’ equity also lists retained earnings as the amount of net earnings not paid out as dividends. Retained earnings are often used to pay off debt, reinvest back into the company for research and development purposes, or for new business or capital acquisitions. A company’s net earnings, after taxes, and its retained earnings represent the total net worth of the company. If a net loss is greater than the retained earnings, there are negative retained earnings shown as a deficit.

RELATED FAQS
  1. What are the IRS regulations regarding a share premium account?

    Read about the tax treatment, or lack thereof, for a corporation's share premium account, also known as the additional paid-in ... Read Answer >>
  2. How do companies report the value of their capital stock?

    Find out how companies report the value of their capital stock in their financial statements, including why some companies ... Read Answer >>
  3. What are the Components of Shareholders' Equity?

    Understanding company valuation figures, such as shareholders' equity, is crucial in assessing a business. Read Answer >>
  4. The difference between par and no par value stock

    Understand the difference between par and no par value stock and how this differentiation affects corporate liabilities and ... Read Answer >>
  5. How do dividends affect the balance sheet?

    Learn how different types of dividends, such as cash dividends and stock dividends, affect a company's balance sheet, based ... Read Answer >>
Related Articles
  1. Investing

    Evaluating Retained Earnings: What Gets Kept Counts

    A company's retained earnings matter. Be investment-savvy and learn how to analyze this often overlooked information.
  2. Investing

    How Dividends Affect Stockholders' Equity

    Find out how dividends affect a company's stockholders' equity and how the accounting process changes based on the type of dividend issued.
  3. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  4. Financial Advisor

    Understanding Life Insurance Premiums

    When buying permanent life insurance, what amount of premium should you pay for the coverage?
  5. Investing

    Dividend Facts You May Not Know

    Discover the issues that complicate these payouts for investors.
  6. Investing

    Balance Sheet: Analyzing Owners' Equity

    Analyzing owners’ equity is an important analytics tool, but it should be done in the context of other tools such as analyzing the assets and liabilities on the balance sheet.
  7. Financial Advisor

    Is A Premium Checking Account Worth It?

    Premium checking accounts give you free checking and other perks in return for keeping a certain balance in the bank. Is that the best use of your money?
  8. Managing Wealth

    Issued Share Capital vs. Subscribed Share Capital

    Subscribed share capital is very different from issued share capital, which is the actual issued stock.
  9. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  10. Trading

    Getting A Handle On The Options Premium

    The price of an option, otherwise known as the premium, has two basic components: the intrinsic value and the time value. Understanding these factors better can help the trader discern which ...
RELATED TERMS
  1. Share Premium Account

    Usually found on the balance sheet, this is the account to which ...
  2. Retained Earnings

    Retained earnings is the percentage of net earnings not paid ...
  3. Net Premiums Written

    Net premiums written is the sum of premiums written by an insurance ...
  4. Stated Value

    A value that, instead of being par value, is assigned to a corporation's ...
  5. Earned Premium

    Earned premium is a pro-rated amount of paid-in-advance premiums ...
  6. Capital Stock

    The common and preferred stock a company is authorized to issue, ...
Hot Definitions
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  2. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  3. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
  4. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  5. Candlestick

    A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick ...
  6. Indicator

    Indicators are statistics used to measure current conditions as well as to forecast financial or economic trends.
Trading Center