The share premium is the amount paid by whoever subscribes new shares or participations above their nominal value. It is calculated as (issue price – nominal value) × number of new shares, it is recorded, once the capital increase is registered, in account 110 of the Plan General de Contabilidad, within equity, and it is paid in full at the time of subscription.
How the share premium is calculated: formula and example
There is only one formula:
SP = (issue price – nominal value) × no. of new shares
The issue price comes from the agreed valuation. In a financing round, the pre-money valuation divided by the number of existing shares (counting options and convertibles if the term sheet so provides) gives the price per share. That price minus nominal value is the unit premium.
An example with figures. A public limited company (SA) has 100,000 shares with a nominal value of 1 euro and agrees a capital increase with a pre-money valuation of 5 million euros. An investor contributes 500,000 euros.
| Concept | Calculation | Result |
|---|---|---|
| Price per share | 5,000,000 / 100,000 | 50 € |
| New shares | 500,000 / 50 | 10,000 |
| Increase in share capital | 10,000 × 1 € | 10,000 € |
| Share premium | (50 – 1) × 10,000 | 490,000 € |
| Investor's stake | 10,000 / 110,000 | 9.09 % |
Without a premium, the same investor would receive 500,000 shares at nominal value and would end up holding 83 % of the company with a contribution equivalent to one tenth of its value. That is what the premium is for: the new investor pays the real price and the percentages reflect what each party contributed.
Two legal limits. Issuing below nominal value is prohibited (art. 59.2 of the Ley de Sociedades de Capital); above it, the law does not set a maximum. But if the pre-emptive right is waived, nominal value plus premium must correspond to the real value resulting from the directors' report (SL) or the independent expert's report (SA) (art. 308.2.c LSC). Before calling the general meeting, check that nominal value, premium and number of shares match the agreed valuation.
How it is accounted for: the entry with account 110
The Plan General de Contabilidad (Real Decreto 1514/2007) includes the premium in account 110 «Share premium or assumption premium», which it defines as the contribution of the shareholders or partners in the issuance of shares or participations at a price above their nominal value. It is equity, within own funds: it is not a liability or income. The exception is shares that, due to their conditions, oblige the company to deliver cash (for example, those redeemable at the investor's option or those carrying a mandatory dividend): in that case the nominal value and the premium are recorded as a financial liability and not in account 110.
Using the previous example, a fully paid-up cash capital increase is recorded as follows:
| Stage | Debit | Credit | Amount |
|---|---|---|---|
| 1. Issuance agreement | (190) Shares or participations issued | (194) Issued capital pending registration | 500,000 € |
| 2. Subscription and payment | (572) Banks | (190) Shares or participations issued | 500,000 € |
| 3. Registration in the Commercial Registry | (194) Issued capital pending registration | (100) Share capital: 10,000 € (110) Share premium or assumption premium: 490,000 € | 500,000 € |
If in an SA only the minimum is paid in (one quarter of the nominal amount and all of the premium), in step 2 the treasury account (572) is debited for the amount received and account 1034 "Shareholders for unpaid contributions, capital pending registration" is debited for the outstanding nominal amount. Upon registration, that amount moves from 1034 to 1030, and when the unpaid capital is called, account 5580 is debited with a credit to 1030. In the example: 572 for 492,500 € and 1034 for 7,500 €. In an SL this is not possible: the nominal amount is paid in full (art. 78 LSC).
Two details that often go wrong. If the accounts are prepared before registering the capital increase, account 194 appears under current liabilities. And the incremental costs of the issuance (notary, registry, transaction lawyers, placement fees) do not go to the profit and loss account: they are recorded directly against equity, as lower reserves or as a lower premium, net of their tax effect. By contrast, the costs of an abandoned capital increase, of a capital increase charged to reserves, and of valuation or analysis of the company go to profit or loss (art. 6.2 of the ICAC Resolution of 5 March 2019).
Share premium and assumption premium: SA versus SL
It is the same concept with two names. The shares of a public limited company are subscribed and their premium is the share premium; the participations of a private limited company are assumed and theirs is the assumption premium. The Ley de Sociedades de Capital uses both expressions and the Plan General de Contabilidad groups them in account 110.
| Aspect | Public limited company | Private limited company |
|---|---|---|
| Shares | Shares | Social participations |
| Name of the premium | Share premium | Assumption premium |
| Payment of the nominal amount | At least one quarter (art. 79 LSC) | In full (art. 78 LSC) |
| Payment of the premium | In full on subscription (art. 298.2 LSC) | In full on assumption (art. 298.2 LSC) |
| PGC account | 110 | 110 |
The asymmetry matters for the cash impact of the transaction: in a public limited company you can leave part of the nominal amount outstanding, but the premium is paid in full on day one. If you have not yet chosen a legal form, compare the SL and the SA for issuing securities.
Repayment and distribution of the share premium
As a general rule, the premium is a distributable reserve and can be used in two usual ways:
- Return it to the shareholders. The general meeting resolves it and the rules of any distribution apply (art. 273 LSC): it only proceeds if net equity, without counting the valuation adjustments or the grants recorded in it, is not or does not become after the distribution lower than share capital, and if available reserves continue to cover the capitalized research and development expenses (art. 273.3 LSC and art. 28 of the ICAC Resolution of 5 March 2019). Since it does not affect the share capital figure, it is not a capital reduction and does not give creditors a right of opposition.
- Capitalize it. The law allows increasing capital charged to the share premium or issuance premium reserves (art. 303.1 LSC), based on a balance sheet approved by the general meeting, closed within the six months prior to the resolution and verified by an auditor (art. 303.2 LSC); the expenses of this transaction are taken to the profit and loss account, delivering new securities or increasing the nominal value without additional contribution.
Taxation calls for caution. In Spain, for an individual shareholder, the amount returned reduces the acquisition value of their shares until it is reduced to zero, and the excess is taxed as income from movable capital. If the shares or interests are not admitted to trading on a regulated market (those of unlisted companies and also those traded on BME Growth or another multilateral trading facility), the premium received is taxed as income from movable capital up to the positive difference between the equity attributable to those securities according to the last closed financial year and their acquisition value. That equity is reduced by reserves distributed previously and by legally unavailable reserves generated after acquisition. Anything exceeding that limit reduces the acquisition value (art. 25.1.e of Ley 35/2006 del IRPF). If the shareholder is a company, what is received reduces the tax value of its holding and only the excess is included in the taxable base (art. 17.6 of Ley 27/2014 del Impuesto sobre Sociedades); that excess may be 95 % exempt if the requirements of art. 21 are met (holding of at least 5 % for one year). In ITPAJD, the return of the premium is not subject to corporate operations (DGT consultation V0752-14). Request the calculation shareholder by shareholder before approving the distribution and state in writing in the capital increase resolution the intended use of the premium: it avoids later disputes between founders and investors.
What is it called in Latin America
The arithmetic is identical throughout the region; the name, the accounting account and who sets the premium change.
| Country | Common term | Where it is regulated or registered |
|---|---|---|
| Colombia | Share placement premium (in limited companies, on quotas or partnership interests) | Account 3205 of the Single Chart of Accounts of Decree 2650 of 1993 (subaccount 320505), which many companies still use as a catalog although, after convergence to IFRS (Ley 1314 de 2009), each entity can define its own. For tax purposes it forms part of the contribution and of the tax cost of the payer (art. 36 of the Estatuto Tributario). |
| Mexico | Share subscription premium or share issuance premium | Contributed capital under NIF C-11. The Ley General de Sociedades Mercantiles prohibits issuing below nominal value (art. 115) and provides for the capitalization of premiums (art. 116). |
| Argentina | Share premium | Ley General de Sociedades 19,550, art. 202: it is set by the extraordinary shareholders' meeting (the ordinary meeting, which may delegate it to the board of directors, if the company makes a public offering of its shares), with equality in each issuance. Net of expenses, it forms a special reserve that is only distributed under the requirements for capital reduction (arts. 203 and 204). |
| Spain | Issuance premium (SA) or share premium (SL) | Account 110 of the PGC; art. 298 of the Ley de Sociedades de Capital. |
If your company is Latin American and is considering raising funds in Europe through a Spanish company, the premium is governed by the law of that company, the LSC. The complete scheme is in the guide on tokenization for issuers from Latin America.
The premium in a tokenized equity issuance
If the capital increase is structured with tokenized shares, the premium works the same. The token represents the share; valuation, par value and premium are set in the capital increase resolution, as in any transaction. What changes is the representation: Ley 6/2023 allows securities to be recorded in a distributed ledger system, with an ERIR, the entity responsible for registration and recording, which maintains that registry (art. 8 of the Ley 6/2023 and Real Decreto 814/2023).
An operational nuance: the premium does not travel inside the token. The registry records the security, its holder and its rights; the premium remains in the resolution, in the deed and in account 110. If you are considering this route, first compare tokenized equity vs. classic capital increase and review the process in the guide on how to issue a security token in Spain.
Are you preparing a capital increase with premium and considering issuing it in tokenized format? Take the issuance diagnostic (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
How is the issuance premium calculated?
The nominal value is subtracted from the issue price of each share or interest and multiplied by the number of new securities: IP = (issue price - nominal) × no. of securities. If a company issues 10,000 shares with a nominal value of 1 euro at 50 euros each, the premium is (50 - 1) × 10,000 = 490,000 euros and share capital increases by only 10,000 euros.
What type of account is the issue premium?
It is an equity account, within own funds: account 110 “Issue or assumption premium” of the General Accounting Plan. It is not a liability or income, because it is a contribution from the shareholders. Until the increase is registered with the Commercial Registry, the amount is recorded in account 194, issued capital pending registration.
What is the difference between issue premium and assumption premium?
None economically. Issue premium is the term for the public limited company, whose shares are subscribed; assumption premium is the term for the limited liability company, whose membership interests are assumed. In both cases it is paid in full at the time of subscribing or assuming, according to article 298 of the Ley de Sociedades de Capital, and it is recorded in the same account 110 of the PGC.
Can the issue premium be returned to shareholders?
In general, yes, because it is a distributable reserve: it can be distributed if equity, without counting adjustments for changes in value or grants, is not, and does not remain, below share capital and the remaining distributable reserves cover capitalized R&D, or it can be capitalized in a capital increase charged to reserves. For IRPF, the amount reduces the acquisition value of the shares and the excess is taxed as income from movable capital, with a special rule when the securities are not admitted to trading on a regulated market (unlisted companies and also those on BME Growth or other multilateral systems). Check it first with a tax advisor.
What is the issue premium called in Colombia and Mexico?
In Colombia it is called prima en colocación de acciones, which the Plan Único de Cuentas of Decree 2650 of 1993 includes in account 3205; in limited liability companies, prima en colocación de cuotas o partes de interés social. In Mexico, prima en suscripción de acciones or prima en emisión de acciones is used, which forms part of contributed capital. The calculation is the same.
