What is Share Capital?
What is Share Capital ?
You might heard about the term Share Capital, in different Newspapers, Magazines or News. Are you curious to know about this term, let’s have a look on this.
Share capital consists of all funds raised by a company in exchange for shares of either common or preferred shares of stock. The amount of share capital or equity financing a company has can change over time. A company that wishes to raise more equity can obtain authorization to issue and sell additional shares, thereby increasing its share capital.
Share capital is also known as shareholder’s capital, equity capital, contributed capital or paid-in capital.
The amount of share capital a company reports on its balance sheet only accounts for the total amount initial paid by shareholders. If those shareholders later resell their shares on the secondary market, any difference between the initial and subsequent sales prices does not impact the company’s share capital.
The term “share capital” is often used to mean slightly different things, depending on the context. When discussing the amount of money a company can legally raise through the sale of stock, there are actually several categories of share capital. Accountants have a much narrower definition.
Share Capital is the amount invested by a company’s shareholders for use in the business. When a company is created, if it’s only asset is cash invested by the shareholder’s, the balance sheet is balanced on the right side through share capital, an equity account.
Paid-Up Capital and Issued Share Capital.
Before a company can raise equity capital, it must obtain permission to execute the sale of stock. The company must specify the total amount of equity it wants to raise and the base value of its shares, called the par value. The total par value of all the shares a company is permitted to sell is called its authorized share capital. While a company may elect not to sell all its shares of stock during its initial public offering (IPO), it cannot generate more than its authorized amount.
In accounting, share capital is the sum of the par value of all issued shares. However, there are various non-accounting uses of the term “share capital,” some of which are identical to paid-up capital.
The total value of the shares the company elects to sell is called its issued share capital. Not all these shares may sell right away, and the par value of the issued capital cannot exceed the value of the authorized capital. The total par value of the shares that the company sells is called its paid share capital. This is what most people refer to when speaking about share capital.
Issued share capital and paid-up capital are the total amount of capital funded by a company’s shareholders. Authorized share capital, on the other hand, is the maximum capital that a company is allowed to raise through the sale of its shares.
The amount of capital with which a company is registered with the registrar of companies (body responsible for registration of companies). It is the maximum amount of capital which a company can raise through shares i.e. shared capital can be maximum up to the authorized capital and not beyond. Due to this reason companies are registered with such authorized capital which is well above their current needs of financing so that if more is needed in future then it is easily possible. Authorized capital is also called Registered capital or Nominal capital.
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