Pardon my ignorance with financial terminology. I have invested in a private limited company.
I have paid @ 100 rupees/ per share. Director of the company is explaining that value of share is 10 rupees and I have paid 90 rupees premium on each share.
Share certificate says,
- Equity shares each of rupees - 10/-
- Amount Paid up per share rupees- 10/-
There is no mention in share certificate about the premium he is talking about. Is the share certificate right? Also, in which document of company it will be specified that I have paid 90 rupees premium on each share? I thought after taking in account of premium part -"Amount paid up per share" should be rupees 100, on share certificate. Am I right or director of the company is explaining it correctly? Any help and explanation would be great help.
Thanks and Regards,
Anjan
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what is "amount paid up per share"
The face value and paid up value of the share would be Rs. 10. The premium paid by you will no appear in the share certificate.
The face value of the share is Rs.10 for which you have paid Rs. 100/-. The additional amount you paid to the company is premium. Premium isgenerally paid when the intrinsic (or true) value of the share is more than the face value.
Take this example -
Total Assets of a company is Rs. 1,00,000/- and Total Liabilities to Third parties is Rs. 30,000/-. The balance 70,000/- belongs to the owners/shareholders. Let us assume that there are 1000 shares of face value Rs. 10/- each. Now the intrinsic value of the shares works out to Rs. 70/-. If you paid Rs. 70/- to buy the shares, Rs. 10 is towards the face value and balance Rs. 60/- is the premium.
Hope the concept is clear.
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Thank you Suraj, to explain it with example. Now I need to understand, will company have any document where they mention this premium? Is it accounted in accounts of the company? Regards, anjan Originally posted by : CA Suraj Lakhotia |
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The face value and paid up value of the share would be10. The premium paid by you will no appear in the share certificate. The face value of the share is 10 for which you have paid100/-. The additional amount you paid to the company is premium. Premium isgenerally paid when the intrinsic (or true) value of the share is more than the face value. Take this example - Total Assets of a company is1,00,000/- and Total Liabilities to Third parties is30,000/-. The balance 70,000/- belongs to the owners/shareholders. Let us assume that there are 1000 shares of face value10/- each. Now the intrinsic value of the shares works out to70/-. If you paid70/- to buy the shares,10 is towards the face value and balance60/- is the premium. Hope the concept is clear. |
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If the company has alloted shares to you then,
The amount paid towards face value will be credited to (accounted as) Share Capital and the amount paid towards premium would be credited to "Securities Premium" account. Both are share holders fund.
If you have bought the shares from another shareholder than the company does not come in picture. In this case you paid the seller the fair value of the share. As the value of a business/company grows, so does its share's value.
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