Share Premium and Share Premium Account meaning and definition
Every Shares issued by a Limited Company has a face value (nominal value), which is a fixed denomination. Say for example Rs. 10/- per share or Rs. 100/- per share. When a Company issues shares it may issue it at par / at discount or at premium.
Meaning 'Share Premium'
Premium means the excess amount that the investor (shareholder) is going to pay to the Company to acquire the shares of that Company, over and above the face value of the shares.
Example:- Let the face value of a Company's shares is Rs. 10/- and a investor is ready to buy it at Rs. 15/-, then the excess paid amount i.e. Rs. 5/- is the premium paid on the shares, thus the Share Premium is Rs. 5/- per share.
Meaning 'Share Premium Account'
When a Company issues shares at premium, be it through cash or in other modes', the amount of such premium needs to be transferred to an account, called as 'share premium account.
There is no explicit definition of Share premium/Share Premium Account under the Companies Act, 1956, but it is generally know by its above meaning and the use of which is governed by Section 78 of the said Act.