What is share capital and what is share premium?

Question

What is share capital and what is share premium?

Answer 1

Share capital means funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares.

In the past all shares had a par value, say $1. When a share was sold at par, it meant that $1 was paid for it. If a share was sold at above par, you said that it was sold at a premium. Let's say a share with par value of $1 was sold for $1.20, the share premium was $0.20. However, increasingly, companies are now issuing shares with no par value, thereby making the concept of share premium obsolete.