Nominal value and subscription price; What’s the difference?

Nominal Value vs. Subscription Price

When founding a private limited company, a public limited company, or when increasing or decreasing a company’s capital, the capital shares must be specified in both the founding document and the articles of association. The nominal value of the shares and the subscription price must be stated. But what is the difference between nominal value and subscription price?

The Nominal Value

The nominal value is the face value of the capital share. This means that it is not affected by market prices.

The Subscription Price

The subscription price determines how much the individual shares are worth and, consequently, what it will cost to subscribe for a given number of shares.

Example

Let’s consider a private limited company (ApS) founded with a nominal share capital of DKK 40,000, divided into shares of DKK 1 each. This means there are 40,000 shares in the company.

Suppose you want to acquire 10% of the company, so you are offered to acquire nominally DKK 4,000 worth of shares (40,000/100*10). It is agreed that you will pay DKK 4,000 for nominally 4,000 shares. This means you pay DKK 1 for each share of DKK 1, resulting in a subscription price of 100 (4,000/4,000*100), also called the share price.

The private limited company must therefore increase its share capital by a nominal amount of DKK 4,000, from DKK 40,000 to DKK 44,000, at a subscription price of 100.

Alternatively, if the company’s value has increased beyond DKK 40,000 since its founding, you might need to pay DKK 12,000 for nominally 4,000 shares instead. The subscription price in this case would be 300 (12,000/4,000*100). This means you pay DKK 3 for each share with a nominal value of DKK 1, implying that you are subscribing at a premium.

The private limited company must still increase the nominal share capital by DKK 4,000, but the subscription of the new shares occurs at a subscription price of 300.

Key Differences

The subscription price reflects the company’s net asset value and can fluctuate based on this. In contrast, the nominal value simply represents the value that the owners originally invested in the company. The nominal value also indicates the proportional ownership of each shareholder in the company.