Translation: Share Premium = Share Premium.

Simple Definition: It is the additional amount that investors pay to buy a company's share at an increase over its "nominal value" during the initial public offering or when increasing capital. In other words, if the basic (nominal) price of a share is 10 riyals, and it was offered to the public at 50 riyals based on the strength of the company's position and financial valuation, then the additional 40 riyals are recorded in the financial statements within equity under the item "Share Premium".

What does this mean to you?

  • A Measure of Market Confidence: The size of this premium reflects how much confidence investors have in the company's future and its attractiveness. The more willing investors are to pay a higher premium above the nominal value, the stronger the indication of their belief in the strength of the business model, assets, and future growth opportunities of the company.
  • Strategic Financial Cushion for the Company: This balance represents a strong reserve and a source of financial robustness. The company can use it later as a "life jacket" to extinguish any accumulated losses it may face in the future (to clean up its balance sheet) in an accounting process that does not affect the company's cash liquidity at all.
  • Tool for Increasing Capital (Bonus Shares): Management can use this accumulated balance to grant "free shares" (Bonus Shares) to current shareholders, which leads to an increase in the company's paid-up capital formally without the need to collect new funds from investors' pockets.

Common Question: Can a company distribute the "Share Premium" balance as cash dividends (Dividends) to shareholders?

Answer: No, the Share Premium balance is not considered "retained earnings" (which the company achieves from its business and operational activities), but rather part of the amounts that shareholders themselves injected during the IPO. Therefore, financial and regulatory systems prohibit distributing it as direct cash dividends to ensure that equity does not erode, and its use is limited to regulatory purposes such as extinguishing losses or capitalizing it to increase capital.