Share Premium refers to the amount received by a company over and above the face value of its shares during issuance. For example, if a share with a face value of _10 is issued at _50, the additional _40 is recorded as the share premium. This component forms a part of the company’s reserves and surplus and reflects investor confidence in the company’s growth and profitability.

In accounting terms, the share premium is credited to a separate account called the Securities Premium Account under the shareholders’ equity section of the balance sheet. This reserve can be utilized for specific purposes defined under the Companies Act, 2013 — such as issuing fully paid bonus shares, writing off preliminary expenses, or providing for the premium payable on the redemption of preference shares or debentures.

Companies typically issue shares at a premium when there is strong demand, sound financial performance, or high market reputation. For investors, a higher premium often indicates a company’s potential for long-term value creation. However, it’s essential to evaluate the business fundamentals, valuation metrics, and future growth prospects before investing, rather than relying solely on the premium amount.

From a regulatory perspective, SEBI (Securities and Exchange Board of India) governs all aspects of public issues, including the pricing and disclosure of share premiums, to ensure transparency and protect investors’ interests. Misuse or misstatement of share premium funds can attract legal and regulatory scrutiny.

In summary, the share premium serves as a crucial financial indicator reflecting a company’s market perception and investor trust. Understanding its implications helps both companies and investors make informed financial and investment decisions within the regulatory framework.