What is the Difference Between Share Capital and Share Premium?

Share capital and share premium are related but distinct aspects of a company's finances. Here are the key differences between them:

• Share Capital: This refers to the total nominal value of all the company's shares. It is the initial amount raised by the company when it issues shares at their par or nominal value. For example, if a company issues 10,000 shares at a par value of $2.5, the share capital will be $25,000.
• Share Premium: This represents the surplus amount raised above the nominal value of the shares during their issuance. It is the additional amount of funds received exceeding the par value of security. Share premium is a component of shareholders' equity, which appears on the balance sheet. For example, if a company issues 1,000 shares at a par value of $10 each, but the shareholders pay a premium price of $15 per share, the share premium would be $5,000.

In summary, share capital is the initial amount raised by the company when it issues shares at their par or nominal value, while share premium is the additional amount raised above the nominal value of the shares during their issuance. Both share capital and share premium contribute to a company's equity and serve as financial resources for the company.

Comparative Table: Share Capital vs Share Premium

Here is a table highlighting the differences between Share Capital and Share Premium:

In summary, share capital is the money generated from issuing shares at their nominal value, while share premium is the difference between the nominal value and the market value of shares. Share capital is recorded in the shareholders' equity section of the balance sheet, and share premium appears as a component of shareholders' equity.