What Is Share Premium in Cyprus Corporate Law — And How Can It Be Used?

Share premium is the amount by which the issue price of a company’s shares exceeds their nominal (par) value. Under Cyprus Companies Law (Cap. 113), this excess amount is recorded in a separate account called the share premium account.

Example:

If the nominal value of a share is €1, and it is issued at €10, the €9 difference is credited to the company’s share premium account.

Legal Significance of Share Premium

Under Cyprus law, share premium is treated similarly to fully paid-up share capital. This means it cannot be distributed as ordinary profits or dividends, but it can be used for several important corporate purposes.

How Can a Cyprus Company Use Share Premium?

• Issue Fully Paid Bonus Shares

Share premium may be capitalized to issue bonus shares to existing shareholders — effectively increasing share capital without requiring further investment from shareholders.

• Cover Share Issue Expenses

The company may use the share premium account to pay expenses, commissions, or fees related to the issuance of shares.

• Write Off Preliminary Expenses

Early-stage costs, such as those related to company formation or corporate restructuring, may be offset using share premium.

• Strengthen the Balance Sheet

Share premium enhances the company’s equity without raising nominal share capital. This can improve the company’s financial standing, increase investor confidence, and support loan applications.

Restrictions

Share premium cannot be used to pay dividends or make distributions to shareholders unless the company undertakes a formal capital reduction process, which must be approved by the court.

Conclusion

Share premium is a flexible and powerful corporate finance tool under Cyprus law. While it is not available for direct payouts, it plays a key role in:

• corporate restructuring,
• balance sheet optimization,
• internal shareholder adjustments,
• and overall capital management.

If you are planning a share issue or reviewing your company’s capital structure, leveraging share premium effectively can be a strategic advantage.

Remark: The content of this article was accurate at the time of the first publication. It provides general information on the subject matter and is not intended as legal advice. For specific advice on your situation, we recommend seeking professional counsel. If you have any questions or need further information, please contact our experts at contact@mainpartnertrust.com

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