ACCA LW Eng Syllabus E. Capital And The Financing Of Companies - Issuing Shares At A Discount Or A Premium - Notes 4 / 4
Shares must not be allotted at less than nominal value (higher is fine)
However if they are issued at a discount to their nominal value then the nominal value must eventually be paid
So, there's no requirement to immediately pay the full value of the shares.
The part of the nominal value actually paid is called the paid up capital.
A resolution can be passed saying any unpaid capital won't be called up. However, the unpaid element can still be called up if the company cannot pay its debts
Issuing shares at a Premium
Lets say you issue 100 (£1 nominal value shares) for £120
So share capital is increased ALWAYS at nominal value - in this case £100
The extra £20 goes to share premium
Literally a premium paid above the nominal value
NB. The share premium cannot be used to distribute a dividend from
Uses of the Share Premium Account
The Debit in a bonus issue (Dr Share Premium Cr Share Capital)
The expenses in a share issue may come from the share premium
The expenses, commission or discount incurred in any issue of debentures may come from the share premium
To pay for the premium payable on redemption of debentures.
Preliminary expenses of the company may come from the share premium