Understanding Share Premium: A Guide to Working Capital and Company Accounts
Jan 30, 2025
Time to read:
5
minutes
Who should read this?
This article is written for company directors and business owners who need to understand how share premium works in their company accounts.
If you're involved in company finance or making decisions about share issuance, this guide is essential reading.
Key Takeaways:
Share premium monies received from issuing shares can be used as working capital for company expenses, debts, and acquisitions, while the share premium account is a statutory record that must be maintained
The cash received from share premium appears in the top part of the balance sheet and can be used freely by directors, subject to any stated intentions during share issuance
The share premium account, located at the bottom of the balance sheet, is part of capital maintenance requirements and cannot be distributed without proper reduction procedures
When shares are issued at a premium, the cash received can be used immediately, but the share premium account remains unchanged regardless of how the money is spent
Directors should understand that reserves (including the share premium account) are distinct from cash and represent a different aspect of company finances
Frequently Asked Questions (FAQs)
Can I use share premium money to pay regular business expenses?
Yes, once the share premium money is received, it becomes part of your company's working capital and can be used to pay any business expenses, unless you specifically promised to use it for something else when issuing the shares.
How do I reduce the share premium account?
You must follow specific legal procedures to reduce the share premium account, similar to reducing share capital. This is separate from any share buyback or cancellation and requires proper documentation and potentially court approval.
What happens to the share premium account if we buy back shares?
The share premium account remains unchanged when you buy back shares, even if those shares were originally issued at a premium. The account is not automatically reduced when the related shares are cancelled.
Do I need to keep the share premium money separate from other company funds?
No, once received, share premium money becomes part of your general working capital and doesn't need to be kept separate, unless you made specific promises about its use when issuing the shares.
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