What is the concept of premium?

Generally, most of the shares have a face value (i.e., the value as in a balance sheet) of Rs 10 though not always offered to the public at this price. Companies can offer a share with a face value of say Rs 10 to the public at a higher price. The difference between the offer price and the face value is called the premium. As per the SEBI guidelines, new companies can offer shares to the public at a

premium, provided: 

􀂄 The promoter company has a three years consistent

record of profitable working.

􀂄 The promoter takes up at least 50 per cent of the shares

in the issue.

􀂄 All parties applying to the issue should be offered the same instrument at the same terms, especially regarding the premium.

􀂄 The prospectus should provide justification for the proposed premium. On the other hand, existing companies can make a premium issue without the above restrictions.