It is a concept that deals with the sale prices of the shares of an established company. Investors set the price of the shares and can establish a price equal to the nominal value, that is, the one they paid, or they can establish a issue premium or premium for each share.
In this article you will find:
What is the share premium really?
It refers to the premium paid or paid for a share corresponding to its nominal value.
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This premium is valued and important when a company by society already created wants to make an expansion of capital, allowing the entry of new partners, which implies putting new shares up for sale to extend the deal.
In this scenario, the initial investors are the ones who can decide the value of these shares, which can be identical to the nominal value or set the premium on each share.
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The total issue premium paid by the shareholders must appear on the company's balance sheet, as a reserve after the completion of the operation.
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Share premium objective
The conceptshare premium Its essential purpose is to protect the old shareholders, against the shareholders that are going to be incorporated. Given that the former have been the founders, they have made significant investments, have generated a portfolio of clients, profits and established solid relationships with its suppliers, among fillies stuff.
During its operation and over time, the company has generated certain reserves, the value of which remains fixed regardless of the increase in the number of shares.
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Given that the reserves are prior to the capital increase, it is common for the founders to decide on a payment higher for each share for new partners, thus avoiding the dilution effect or loss of value of their Actions.
How is it calculated?
This is a fairly simple operation, which seeks to measure the difference between the new price set for the new shares for sale and the nominal value of the shares.
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- The issue premium (PE) of a share is equivalent to the issue value (EV) of each share minus (-) the nominal value (NP) of the initial shares.
PE = VE –VN
Thus, the value to be paid by the new partners resides in the sum of the NPV par value of the share, plus (+) the issue premium established by the founding shareholders.
VE = VN + PE
Importance of the share premium
The premium is an element that allows the capital increase of a company, therein lies its importance.
Increasing the capital of the company is an important decision that takes place in many companies, especially when The company has achieved its purposes and seeks new objectives, for this purpose it seeks to attract the attention of new investors.
In the case of bringing in new partners, the issuance of new shares is carried out. Upon entering this new partner, the issue premium protects the founding partners from the dilution of their capital.
For example: If the share capital of a certain company with two partners is € 3,000 and a new partner enters, contributing € 27,000, the founders will only have 50% of the company, with 5% each. To avoid this, the issue premium (additional value) that is paid to the company is established, but it does not constitute part of the NAV (nominal value) of the shares.
Following the example, the founding company has € 3,000, the new partner contributes € 27,000 but the founders will only allow their participation to be 25%. Therefore, their shares must be nominally valued at € 1000, becoming their new total share capital € 4,000 and the contribution of the new partner represents the expected 25%, contributing the remaining € 26,000 as a premium of issue.
