| A prevailing opinion among Chinese scholars and practitioners is that the share premium subscribed by shareholders is some kind of contractual obligation. Accordingly, Chinese accounting standards only require a company to record the already paid-up share premium rather than the subscribed one as the additional capital in its balance sheet. In the absence of clear accounting and legal interpretations, it becomes a common understanding that share premium is not a statutory obligation of shareholders in China. However, such an understanding is contrary to the worldwide legislative trend towards treating both par value and share premium as the legal capital contributed by shareholders to their company and requiring all subscription prices to be paid on schedule, and it confuses the essentially different concepts of shares subscription and capital subscription. Actually, the corporation law systems in other jurisdictions expressly require that all of the consideration, including the share premium, committed by shareholders for the shares should be disclosed clearly in the balance sheet. The commitment for consideration is a binding obligation of shareholders and the purchasing price subscribed by shareholders should be considered as one of the important parts in a company's asset guarantee. Under the company capital subscription system in China, both registered capital and share premium, whether paid-up or not, should be considered as the necessary economic resource expected by a company from its shareholders and should be correctly reflected in the balance sheet of the company and reasonably covered by the legal capital system. The share premium should be considered a statuary obligation of shareholders together with registered capital. |
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