{"id":2206,"date":"2022-02-02T04:53:37","date_gmt":"2022-02-02T04:53:37","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2206"},"modified":"2026-05-04T08:41:31","modified_gmt":"2026-05-04T07:41:31","slug":"how-share-premiums-work","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/how-share-premiums-work\/","title":{"rendered":"How Do Share Premiums Work?"},"content":{"rendered":"\n<p>When a company issues shares above their nominal value, the excess amount is called a share premium, and it carries specific legal obligations for how it must be recorded and used. This article explains share premiums, how they come about, and the legal implications of having a share premium account.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is a Share Premium?<\/h2>\n\n\n\n<p>A share premium is the amount of money investors pay for a company\u2019s shares that exceeds the nominal value of those shares. In other words, it is the difference between what investors pay for newly issued shares and the face value of the shares. The company records this excess amount separately from the share capital on its balance sheet.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Nominal vs Market Value<\/h2>\n\n\n\n<p>We define the nominal value of the shares as the face value of the share or the value as recorded at Companies House. When considering nominal value, it is important to note that:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>often, for small businesses, the nominal value of your company\u2019s ordinary shares is \u00a31 because this was the default value when registering your company with Companies House. However, you can select a nominal value, such as \u00a30.01 per share; <\/li>\n\n\n\n<li>companies should not set a high nominal value, as this amount becomes the minimum amount that shareholders must pay for their shares; in other words, it is a debt that the shareholder owes to the company; and<\/li>\n\n\n\n<li>later, after your company has generated revenue and become successful, the nominal value of your shares may be considerably less than the market value.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>Consider the following example.&nbsp;<\/p>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        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You transfer \u00a35,000 to FamCo, and so does your sister. In exchange, each of you receives 5,000 shares. The nominal value of these shares would be \u00a31 because 10,000 shares correspond to your company\u2019s share capital of \u00a310,000.&nbsp;<\/p>\n\n\n\n<p>Five years later, your friend approaches you and asks if he can invest in your company. They have \u00a310,000 to invest.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How Many Shares Would You Give Him?&nbsp;<\/h3>\n\n\n\n<p>To answer this question, you need to know your <a href=\"https:\/\/legalvision.co.uk\/corporations\/value-my-companys-shares\/\">company&#8217;s value<\/a>. In practice, you would also want to know what sort of returns your investor was looking to gain, but this is a simplified example.&nbsp;<\/p>\n\n\n\n<p>To calculate your company\u2019s value, you would need to conduct a valuation of your business.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Understanding FamCo\u2019s Share Premium&nbsp;<\/h2>\n\n\n\n<p>Let us say you hire an accountant, and she values your company at \u00a3100,000.&nbsp;<\/p>\n\n\n\n<p>Given that your company is worth 10 times what it was (roughly speaking) when you incorporated it, you would probably want to receive 10 times as much per share.&nbsp;<\/p>\n\n\n\n<p>In other words, your <a href=\"https:\/\/legalvision.co.uk\/business-structures\/selling-company-shares\/\">shares<\/a> would now be worth \u00a310 (10 x \u00a31). Therefore, a fair value for your buyer would be 1,000 shares (\u00a310,000 \/ \u00a310).&nbsp;<\/p>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>From a legal perspective, the law requires you to distinguish between the price someone has paid for new shares issued in a company and the nominal value of these shares as recorded at Companies House. You cannot sell shares for less than their nominal value. However, if an investor cannot pay the price for the shares immediately, you can issue them with Partly Paid Shares.<\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Shares<\/h3>\n\n\n\n<p>In FamCo\u2019s case, of the \u00a310,000 given to FamCo in exchange for 1,000 shares, FamCo must use \u00a31,000 to pay the nominal value of each share. This is because the nominal value must always be paid up on issued shares, subject to certain exceptions such as with Partially Paid Shares.<\/p>\n\n\n\n<p>You must record the sale of the shares for an additional \u00a39,000 in the share premium account.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Legal Implications of the Share\u2019s Nominal Value&nbsp;&nbsp;<\/h2>\n\n\n\n<p>This means the actual nominal value of your <a href=\"https:\/\/legalvision.co.uk\/corporations\/company-issue-shares\/\">shares<\/a> does not significantly matter as long as they are paid up to that amount.&nbsp;<\/p>\n\n\n\n<div  class=\"box box--icon box--idea\">\n    <p>For instance, you could legally set the nominal value of each of your shares at \u00a33.85943 per share. However, it is more straightforward and more conventional to deal with round numbers, such as increments of 10.<\/p>\n<\/div>\n\n\n\n<p>Regardless of the nominal value, you must always issue your shares for at least this amount. You cannot issue shares for less than this (though you could issue shares for non-cash consideration, such as for services rendered to the company).&nbsp;<\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/07\/29111638\/due-diligence-uk-560x792-1.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Due Diligence Guide For Purchasing a UK Business<\/div>\n            <div class=\"body-text\">\n                <p>Considering purchasing a UK business? Download this free guide for practical tips on conducting due diligence and reducing risks.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.uk\/due-diligence-guide-uk-business-purchase.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\">Changing the Nominal Value of Shares<\/h2>\n\n\n\n<p>A company can change the nominal value of its shares when it splits them. A share split occurs when a company subdivides its existing shares. For example, a company could split 100 shares, each with a nominal value of \u00a31 (i.e., a total nominal value of \u00a3100 for all shares), to 1000 shares, each with a nominal value of \u00a30.10 (i.e., still a total nominal value of \u00a3100 for all shares).&nbsp;<\/p>\n\n\n\n<p>Companies often split shares when bringing in investors, and there are several reasons to consider doing so:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>it ensures they can give an investor shares without involving fractional shares;<\/li>\n\n\n\n<li>it is much easier to offer an investor a 33% stake in a company with thousands of shares instead of ten shares; and<\/li>\n\n\n\n<li>if you plan to bring in investment to your company, splitting your shares keeps shareholdings as simple as possible.<\/li>\n<\/ul>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p dir=\"auto\"><strong>Key Statistics<\/strong><\/p>\n<ol dir=\"auto\">\n<li><strong>5.43 million:<\/strong> Private limited companies on the UK register at March 2025, all governed by Companies Act 2006 share premium rules on equity issuance.<\/li>\n<li><strong>77.6%:<\/strong> FTSE 350 companies that sought authority to disapply pre-emption rights in 2024-25, enabling faster share issues at a premium.<\/li>\n<li><strong>\u00a310.8 billion:<\/strong> Equity finance provided to smaller UK businesses in 2024, typically structured with new shares issued at a premium.<\/li>\n<\/ol>\n<p dir=\"auto\"><strong>Sources<\/strong><\/p>\n<ol dir=\"auto\">\n<li>Companies House (June 2025)<\/li>\n<li>Pre-Emption Group (December 2025)<\/li>\n<li>British Business Bank (June 2025)<\/li>\n<\/ol>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways&nbsp;<\/h2>\n\n\n\n<p>A company share will be issued at a premium if the investor has paid the company more than the share\u2019s nominal value. A company\u2019s nominal share value is the price recorded at Companies House. This figure is often \u00a31 (or \u00a30.10) in practice. If a company has grown in value, it is common for the market value to exceed the nominal value. By law, you must record the difference between the price paid (the market value) and the nominal value and record this amount in the company\u2019s share premium account. The effect is that the money raised cannot be used for certain things, like issuing dividends to shareholders.&nbsp;<\/p>\n\n\n\n<p>If you need help understanding share premium monies, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced <strong><a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\">corporate lawyers<\/a><\/strong> help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision\u2019s legal membership, call <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or <a href=\"https:\/\/legalvision.co.uk\/membership\/\" target=\"_blank\" rel=\"noreferrer noopener\">visit our membership page<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions&nbsp;<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1738063117207\"><h3 class=\"schema-faq-question\">What is a share premium?\u00a0<\/h3> <p class=\"schema-faq-answer\">A share will be issued at a premium if it is issued at a price greater than its nominal value. The share premium is the difference between the amount paid and the share\u2019s nominal value.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1738063125269\"><h3 class=\"schema-faq-question\">What is the nominal value of a share?<\/h3> <p class=\"schema-faq-answer\">The nominal value of a share is its face value, which is recorded at Companies House.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1777879949326\"><h3 class=\"schema-faq-question\">Why would a company split its shares and how does this affect nominal value?<\/h3> <p class=\"schema-faq-answer\">A share split subdivides existing shares into a greater number of shares with a proportionally lower nominal value, keeping the total nominal value the same. Companies often split shares before bringing in investors to avoid fractional shares and simplify shareholding structures.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1777879956506\"><h3 class=\"schema-faq-question\">Can a company issue shares for less than their nominal value?<\/h3> <p class=\"schema-faq-answer\">No. You must always issue shares for at least their nominal value. The nominal value represents the minimum amount shareholders must pay for their shares, making it effectively a debt owed to the company that must always be paid up on issued shares.<\/p> <\/div> <\/div>\n","protected":false},"excerpt":{"rendered":"<p>When a company issues shares above their nominal value, the excess amount is called a share premium, and it carries specific legal obligations for how it must be recorded and used. This article explains share premiums, how they come about, and the legal implications of having a share premium account. What is a Share Premium?<a href=\"https:\/\/legalvision.co.uk\/corporations\/how-share-premiums-work\/\">Continue reading <span class=\"sr-only\">&#8220;How Do Share Premiums Work?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":542,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[20,21,89,90,97,524],"class_list":["post-2206","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-small-business","tag-medium-business","tag-corporation","tag-company","tag-issue-shares","tag-share-premium"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How Do Share Premiums Work? | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Are you a company director wondering how share premiums work? 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He has completed a Law Degree, the Legal Practice Course and a Masters in Sports Law, specialising in Football Law.","url":"https:\/\/legalvision.co.uk\/author\/kieranram\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/how-share-premiums-work\/#faq-question-1738063117207","name":"What is a share premium?\u00a0","acceptedAnswer":{"@type":"Answer","text":"A share will be issued at a premium if it is issued at a price greater than its nominal value. The share premium is the difference between the amount paid and the share\u2019s nominal value.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/how-share-premiums-work\/#faq-question-1738063125269","name":"What is the nominal value of a share?","acceptedAnswer":{"@type":"Answer","text":"The nominal value of a share is its face value, which is recorded at Companies House.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/how-share-premiums-work\/#faq-question-1777879949326","name":"Why would a company split its shares and how does this affect nominal value?","acceptedAnswer":{"@type":"Answer","text":"A share split subdivides existing shares into a greater number of shares with a proportionally lower nominal value, keeping the total nominal value the same. Companies often split shares before bringing in investors to avoid fractional shares and simplify shareholding structures.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/corporations\/how-share-premiums-work\/#faq-question-1777879956506","name":"Can a company issue shares for less than their nominal value?","acceptedAnswer":{"@type":"Answer","text":"No. You must always issue shares for at least their nominal value. 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