share premium: meaning, definition, pronunciation and examples
C2Technical/Formal
Quick answer
What does “share premium” mean?
In corporate finance, the amount of money paid by investors for newly issued shares that exceeds the nominal (par) value of the shares.
Audio
Pronunciation
Definition
Meaning and Definition
In corporate finance, the amount of money paid by investors for newly issued shares that exceeds the nominal (par) value of the shares.
A specific equity reserve account on a company's balance sheet (often called 'Share Premium Account' or 'Additional Paid-In Capital') created when shares are issued at a price above their par value. It represents capital contributed by shareholders that is not part of the share capital itself.
Dialectal Variation
British vs American Usage
Differences
The term 'share premium' and 'share premium account' are standard in UK accounting and company law. In US accounting, the equivalent term is typically 'Additional Paid-In Capital' (APIC) or 'Paid-In Capital in Excess of Par Value'. 'Share premium' is understood but less commonly used in US formal contexts.
Connotations
Identical technical connotations. The British term aligns with UK Companies Act terminology, while the American term is dictated by US GAAP (Generally Accepted Accounting Principles).
Frequency
High frequency in UK professional finance/accounting contexts. Low frequency in everyday language. Moderately frequent in US in international or UK-focused discussions, but 'Additional Paid-In Capital' is the default.
Grammar
How to Use “share premium” in a Sentence
The [COMPANY] raised £5m via a share issue, with £2m credited to the share premium account.Shares were issued at a [PREMIUM] of 50p above their nominal value, creating a share premium.Vocabulary
Collocations
Examples
Examples of “share premium” in a Sentence
adjective
British English
- The share premium reserve is non-distributable under normal circumstances.
- They reviewed the share premium account balance.
American English
- The additional paid-in capital balance is reviewed annually.
- Paid-in capital in excess of par is a key equity component.
Usage
Meaning in Context
Business
Crucial for balance sheet analysis, fundraising reports, and corporate financial statements. E.g., 'The rights issue added £10m to the share premium reserve.'
Academic
Used in finance, accounting, and corporate law textbooks and journals to explain equity structure.
Everyday
Virtually never used in everyday conversation outside of professional investor discussions.
Technical
A precise accounting entry governed by company law. Used in audit reports, statutory accounts, and prospectuses.
Vocabulary
Synonyms of “share premium”
Neutral
Weak
Vocabulary
Antonyms of “share premium”
Watch out
Common Mistakes When Using “share premium”
- Using 'share premium' to mean a stock trading above its historical average (incorrect).
- Treating it as a verb (e.g., 'to share premium' is wrong).
- Confusing it with 'preference shares'.
- Misspelling as 'share premimum'.
FAQ
Frequently Asked Questions
Typically, no. In most jurisdictions (like the UK), the share premium account is part of a company's non-distributable reserves and cannot be used for dividend payments, though it can often be used for other capital purposes like issuing bonus shares.
No. Share premium is an accounting concept related to the initial issuance of shares by the company. The profit you make when selling a share on the secondary market is your 'capital gain'.
A share discount, where shares are issued for less than their nominal (par) value. This is often prohibited or heavily restricted by company law.
It appears in the equity section of the company's balance sheet, usually as a separate line item under shareholders' equity, often titled 'Share Premium Account' or 'Additional Paid-In Capital'.
In corporate finance, the amount of money paid by investors for newly issued shares that exceeds the nominal (par) value of the shares.
Share premium is usually technical/formal in register.
Share premium: in British English it is pronounced /ˈʃeə ˌpriːmiəm/, and in American English it is pronounced /ˈʃɛr ˌprimiəm/. Tap the audio buttons above to hear it.
Learning
Memory Aids
Mnemonic
Think of buying a £1 coin for £1.50. The £1 is the share's nominal value; the extra 50p is the SHARE PREMIUM you paid for it, which goes into a special company account.
Conceptual Metaphor
MONEY IS A RESERVE/STOCK. The share premium is conceptualised as a 'reserve' or 'stock' of extra capital that can be 'used' or 'called upon' for specific purposes, like a strategic fund.
Practice
Quiz
In US GAAP accounting, what is the most direct equivalent of the UK 'Share Premium Account'?