Share capital

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Share capital or capital stock (US English)1 refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value. For example, a company can issue shares in exchange for computer servers, instead of purchasing the servers with cash.

The term has several meanings. In its narrow, classical sense, still commonly used in accounting, share capital comprises the nominal values of all shares issued (that is, the sum of their "par values"). In a wider sense, if the shares have no par value or the allocation price of shares is greater than their par value, the shares are said to be at a premium (called share premium, additional paid-in capital or paid-in capital in excess of par); in that case, the share capital can be said to be the sum of the aforementioned "nominal" share capital and the premium. In the modern law of shares, the "par value" concept has diminished in importance, and share capital can simply be defined as the sum of capital (cash or other assets) the company has received from investors for its shares.

Besides its meaning in accounting, described above, "share capital" may also be used to describe the number and types of shares that compose a company's share structure. For an example of the different meanings: a company might have an "outstanding share capital" of 500,000 shares (the "structure" usage); it has received for them a total of 2 million dollars, which in the balance sheet is the "share capital" (the accounting usage).

The legal aspects of share capital are mostly dealt with in a jurisdiction's corporate law system. An example of such an issue is that when a company allocates new shares, it must do so in a way that does not inequitably dilute existing shareholders.

Types of share capital

Issued capital can be subdivided in another way, examining whether it has been paid for by investors:

  • Subscribed capital is the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ("unsubscribed capital").
  • Called up share capital is the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by instalments.
  • Paid up share capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in instalments ("calls-in-arrears") .

See also

References

  1. ^ Glossary on Trade Financing Terms - Sdead link
  2. ^ Assuming the company itself is not an "investor", yet is a "shareholder", in regard to its own shares.

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