With respect to share capital, it is the amount of money that a company receives for its issued shares over and above the shares’ nominal value. In other words, it represents the difference between the nominal value and the market value of the shares. Share premium arises when a company issues and sells shares for more than the nominal value. In which case, the shares are said to be have been issued at a premium– i.e., more than market value.

On the issuer’s balance sheet, the premium account appears as a share premium reserve account, recording the difference between the nominal value of the shares issued and the fair value of the consideration received.

For example, if a company issues one million shares (with a par of USD 1 per share) at USD 2 per share, then in its accounting books, it will record an increase in the issued shares of USD 1 million and an increase in the share premium reserve of USD 1 million (i.e. the USD 2 million received less the par value of the shares issued, USD 1 million).