Share premium arises when a company issues shares at a price higher than the nominal (par) value of the shares. It is the excess amount over the nominal value, credited to a separate account called the “share premium account.” The share premium account is part of equity but cannot be distributed as dividends.

Uses of Share Premium Account: (i) To issue fully paid bonus shares to existing shareholders
(ii) To write off preliminary expenses of the company
(iii) To write off the expenses or commissions paid on any issue of shares
(iv) To provide for the premium payable on the redemption of redeemable preference shares or debentures
(v) To buy back the company’s own shares or other types of securities (subject to statutory restrictions)