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Share premium account
Practical Law UK Glossary 1-107-7253 (Approx. 4 pages)
Glossary
Share premium account
A statutory, non-distributable reserve which is the part of shareholders' funds (shown separately on the balance sheet) that is formed of the premium paid for new shares above their nominal value. The provisions relating to the share premium account are set out in section 610 of the Companies Act 2006.
Subject to the company's articles, the share premium account may be:
- Used to pay up new shares to be allotted to members as fully paid bonus shares.
- Reduced (or cancelled) by means of a reduction of capital. In accordance with article 3 of the Companies (Reduction of Share Capital) Order 2008, the reserve created on such reduction can be treated as a realised profit and, therefore, it may be distributed to shareholders or used to buy back shares.
For more information on the share premium account, see Practice note, Company reserves: a summary of their creation and use: Share premium account and Article, Share premium: question for an accountant.