Business, Legal & Accounting Glossary
Name given to the total amount of cash which the shareholders have contributed to the company.
The proportion of a company’s capital which derives from the issue of ordinary shares and preference shares.
A company’s share capital is the money it raises by issuing common or preferred stock. With additional public offerings, a company’s share capital or equity financing may change over time.
Depending on the context, the term “share capital” can mean a variety of things. Accountants have a much narrower definition, and it governs the balance sheets of publicly traded companies. It refers to the total amount raised by the company through share sales.
A company’s share capital is reported on its balance sheet in the shareholder’s equity section. Depending on the source of the funds, the information may be listed in separate line items. A line for common stock, another for preferred stock, and a third for additional paid-in capital are usually included.
Shares of common stock and preferred stock are valued at par at the time of sale. In contemporary commerce, the “par” or face value is a nominal figure. A company’s actual receipts in excess of par value are reported as “additional paid-in capital.”
A company’s reported share capital includes only payments for purchases made directly from the company. The subsequent sales and purchases of those shares, as well as the rise and fall of their open market prices, have no effect on the company’s share capital.
Following its initial public offering, a company may choose to have more than one public offering (IPO). The proceeds from those later sales would be used to increase the company’s share capital on its balance sheet.
Depending on the context, the term “share capital” can mean a variety of things. There are several types of share capital when discussing the amount of money a company can legally raise through the sale of stock.
Before a company can raise equity capital, it must first obtain permission to sell stock. The company must specify the total amount of equity it wishes to raise as well as the par value of its shares.
The authorised capital of a company is the maximum amount of share capital that it is permitted to raise.
This does not limit the number of shares that a company may issue, but it does limit the total amount of money that can be raised through the sale of those shares. For example, if a company receives approval to raise $5 million and its stock has a par value of $1, it may issue and sell up to 5 million shares of stock.
The total value of the shares that a company chooses to sell to investors is referred to as the issued share capital. The issued share capital’s par value cannot be greater than the authorised share capital’s par value.
The technical accounting definition of share capital is the par value of all equity securities sold to shareholders, including common and preferred stock.
Non-accountants, on the other hand, frequently include the price of the stock in excess of par value in the calculation of share capital. As previously stated, the par value of stock is nominal, usually $1 or less. As a result, the difference between the par value and the real sale price, known as paid-in capital, is usually substantial. Despite this, it is not technically included in share capital and is not limited by authorised capital limits.
Here’s an example, as well as how it would appear on a balance sheet: Assume that company ABC sells 1,000 shares. Each share has a par value of one dollar and is worth $25. The remaining $24,000 will be recorded as additional paid-in capital by the company’s accountant and $1,000 as share capital by the company’s accountant.
capital stock, equity capital, registered capital, nominal capital, social capital
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This glossary post was last updated: 25th January, 2022 | 0 Views.