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share capital vs share premium
Share capital and share premium are both terms related to the issuance of shares by a company, but they refer to different things.
Share capital refers to the amount of money that a company has raised by issuing shares to investors. When a company issues shares, it receives money from the investors in exchange for ownership in the company. This money is considered part of the company’s share capital, and is recorded in the company’s balance sheet as a liability to the shareholders.
On the other hand, share premium refers to the additional amount of money that investors pay for shares above their nominal value. Nominal value is the stated face value of the shares, which is usually a small fraction of their market value. For example, if a company issues shares with a nominal value of $1 each, and investors pay $5 per share, the share premium would be $4 per share.
The share premium is not considered part of the company’s share capital, but rather is recorded as a separate account in the company’s balance sheet. This account represents the excess amount paid by investors over the nominal value of the shares, and can be used by the company for various purposes such as issuing bonus shares, writing off capital losses, or paying dividends.
In summary, share capital represents the money raised by a company by issuing shares, while share premium represents the excess amount paid by investors over the nominal value of the shares.
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Share premium is the amount that a company receives when it issues shares at a price greater than the face value of the shares. This amount represents the excess over the nominal or face value of the shares and is credited to a share premium account.
The share premium account is a reserve account that is maintained on the balance sheet of a company. It is a type of equity account and represents the difference between the issue price of shares and their nominal value. This account is used to record non-distributable reserves that are generated by the issue of shares at a premium.
The share premium account can be used for a variety of purposes such as to write off the expenses of issuing shares or to increase the company’s capital base. It can also be used to pay dividends or to finance the company’s growth and expansion.
It is important to note that the share premium account cannot be distributed to shareholders as dividends or used to repurchase shares. This is because the amount credited to this account is considered to be part of the company’s capital and not available for distribution.
Overall, the share premium account is an important component of a company’s equity structure and can provide additional financial flexibility for the company.
Share premium is a sum of money that a company receives by selling shares at a price higher than their face value. When a company needs to raise capital, it can issue additional shares to raise money from new or existing shareholders. The sale price of these shares may be higher than their face value, and the difference between the sale price and the face value of the shares is called the share premium.
Share premium is considered part of a company’s charter capital fund and can be used for purposes such as capital gains, business development, debt payments or dividend distributions. According to the law, share premiums are not distributed to the shareholders in the form of dividends and cannot be withdrawn from the company, unless the company is permitted by law or by resolution of the general meeting.
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