What Is Securities Premium? Meaning, Accounting and Example
Learn what securities premium means, how it arises when shares are issued above face value, and how investors can understand it on the balance sheet.
What Is Securities Premium?
Securities Premium is the amount received by a company above the face value of its shares when shares are issued at a premium.
In simple terms:
Securities Premium = Issue Price − Face Value
per share, multiplied by the number of shares issued, subject to the applicable accounting treatment.
Simple Example
Suppose a company issues 10 crore shares with:
Premium per share:
₹150 − ₹10 = ₹140
Total securities premium:
₹140 × 10 crore = ₹1,400 crore
Total issue proceeds:
₹150 × 10 crore = ₹1,500 crore
Securities Premium and Share Capital
In this simplified example:
The distinction helps investors understand how equity capital was raised.
Why Issue Shares Above Face Value?
The issue price can be above face value because investors may value the company's business, assets, growth prospects and expected earnings above the nominal share value.
Face value does not determine fair market value.
Securities Premium on the Balance Sheet
Securities premium is generally presented within shareholders' equity or reserves according to the applicable accounting framework.
Its permitted uses are governed by the relevant legal and accounting requirements.
NIFTY Example
Imagine a hypothetical NIFTY company issues 5 crore shares:
Premium per share:
₹390
Total securities premium:
₹390 × 5 crore = ₹1,950 crore
Total funds raised:
₹400 × 5 crore = ₹2,000 crore
Securities Premium vs Market Premium
These are different concepts.
Securities Premium: arises from relevant share-issuance transactions above face value.
Market Premium: may describe the difference between market price and another reference value.
A listed share trading at ₹500 with a face value of ₹10 does not automatically mean the company has created ₹490 of securities premium.
Securities Premium and IPOs
An IPO can involve shares being issued above face value.
However, an IPO can include both fresh issues and offers for sale.
In an offer for sale, existing shareholders sell shares and the proceeds generally go to those selling shareholders rather than representing fresh capital raised by the company.
Common Mistakes
How Investors Can Analyse It
Final Thoughts
Securities Premium explains how much capital a company has raised above the nominal face value of its shares.
It is a capital-structure concept, not a measure of operating profitability.
Frequently Asked Questions
Is securities premium the same as share capital?
No. They represent different components of equity.
Does higher securities premium mean higher profit?
No. It is related to equity financing.
Does an offer for sale create securities premium for the company?
Generally, an offer for sale involves existing shareholders selling shares, so the proceeds go to those shareholders.
Disclaimer
This article is for educational purposes only and does not constitute financial advice. Please consult a SEBI-registered investment adviser before making investment decisions.
This article is for educational purposes only and does not constitute financial advice. Please consult a SEBI registered investment advisor before making any investment decisions.