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June 14, 2026
The Dispatch

Definition

Face Value vs Premium

Face value is the nominal value of a share stated in the company's capital, while the premium is the amount charged above it in an issue.

A share might have a face value of ₹10 (or ₹1, ₹2, ₹5) but be issued in an IPO at ₹250 — the extra ₹240 is the securities premium. The face value determines the par capital and is the base for dividends declared 'as a percentage', while the premium reflects what investors are willing to pay for the company's prospects.

Under the Companies Act, the premium collected goes into a 'securities premium account' that can only be used for specified purposes. Face value also matters for corporate actions like stock splits, which reduce face value to make shares more affordable.

Related terms

  • Stock SplitA stock split divides each existing share into multiple shares by lowering the face value, increasing the share count and reducing the per-share price without changing total value.
  • Fresh IssueA fresh issue is the part of an IPO where the company creates and sells new shares, raising capital that goes onto its balance sheet.
  • Securities PremiumSecurities premium is the amount a company receives above the face value when it issues shares, recorded in a dedicated reserve.

Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.