What is Share Capital Surplus?

Share Premium or also known as capital surplus in a joint-stock company, is the difference between the par value of the shares and the actual issuance price.

Share Premium = ( Issuance Price of Shares – Par Value) x Number of Shares Issued

Example: A joint-stock company, ABC, issues 120,000 shares, each priced at 100,000 VND, expecting to raise 12 billion VND. Due to market demand, ABC sells each share for 160,000 VND. After selling all the shares mentioned above, they raise 19.2 billion VND. Therefore, the share premium of ABC is 7.2 billion VND.

The share premium is generated from the issuance of additional shares and this surplus will be converted into shares, transferred into the owner's investment capital in the future. This surplus will not be considered as share capital until it is converted into shares and transferred into the company's investment capital.

Circular 19/2003/TT-BTC stipulates as follows:

- The increased differences due to the purchase, sale of treasury stocks, and the difference because the issuance price of new shares is higher than the par value, must be accounted into the share premium, not into the company's financial income. This surplus is not subject to corporate income tax or value-added tax.- If the selling price of treasury stocks is lower than the purchase price, or if the selling price of newly issued shares is lower than the par value, this decrease in difference is not accounted into expenses and cannot be covered by pre-tax profits. It must be covered by the share premium, and if the share premium is insufficient, the post-tax profits and the company's reserves must be used to cover the difference.- The charter capital of the joint-stock company is increased in cases such as transferring the share premium to supplement the charter capital, and this transfer must comply with the condition that if there is an increased difference between the selling price and the capital price of treasury stocks, the company can use the entire difference to increase the charter capital. In cases where not all treasury stocks are sold, the company can only use the increased difference between the share premium and the total capital price of unsold treasury stocks to supplement the charter capital. If the total capital price of unsold treasury stocks is equal to or larger than the share premium, the company is not allowed to adjust the charter capital with this source of funds.

Related Documents:

Circular 19/2003/TT-BTC guiding the adjustment of charter capital and management of treasury shares in joint-stock companies

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