A
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
's share capital, commonly referred to as capital
stock in the United States, is the portion of a corporation's
equity that has been derived by the issue of
shares in the corporation to a shareholder, usually for
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
. "Share capital" may also denote the number and types of shares that compose a corporation's share structure.
Definition
In
accounting, the share capital of a corporation is the nominal value of
issued shares In finance and law, issued shares are the shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders. The act of creating new issued shares is called ''issuance''. Allotment is simply the transfer of sha ...
(that is, the sum of their
par value
Par value, in finance and accounting, means stated value or face value. From this come the expressions at par (at the par value), over par (over par value) and under par (under par value).
Bonds
A bond selling at par is priced at 100% of face valu ...
s, sometimes indicated on share certificates). If the allocation price of shares is greater than the par value, as in a rights issue, the shares are said to be sold at a premium (variously called
share premium
Capital surplus, also called share premium, is an account which may appear on a corporation's balance sheet, as a component of shareholders' equity, which represents the amount the corporation raises on the issue of shares in excess of their par v ...
, additional paid-in capital or paid-in capital in excess of par). Commonly, the share capital is the total of the nominal share capital and the premium share capital. Most jurisdictions do not allow a company to issue shares below par value, but if permitted they are said to be issued at a discount or part-paid.
Sometimes, shares are allocated in exchange for non-cash consideration, most commonly when corporation A acquires corporation B for shares (new shares issued by corporation A). Here the share capital is increased to the par value of the new shares, and the merger reserve is increased to the balance of the price of corporation B.
In practice, the concept of "par value" has very little meaning, since shares usually represent a
residual claim The residual claimant refers to the economic agent who has the sole remaining claim on an organization's net cash flows, i.e. after the deduction of precedent agents' claims, and therefore also bears the residual risk. Residual risk is defined in th ...
; they do not endow their owners with a claim toward any fixed sum of money. In some jurisdictions, share par values have been either abolished or made optional, so a corporation can issue shares having no par value. In that case, from an accounting perspective, all of the corporation's share capital is premium.
Legal capital
Legal capital is a concept used in
European corporate and foundation law
European organisational law is a part of European Union law, which concerns the formation, operation and insolvency of public bodies, partnerships, corporations and foundations in the entire European Union. There is no substantive European c ...
,
United Kingdom company law
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal ...
, and various other
corporate law jurisdictions to refer to the sum of assets contributed to a company by shareholders when they are issued shares.
The law often requires that this capital is maintained, and that dividends are not paid when a company is not showing a profit above the level of historically recorded legal capital.
See also
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Balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a Partnersh ...
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Capital impairment
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Market capitalization
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Paid in capital
Paid-in capital (also paid-up capital and contributed capital) is capital that is contributed to a corporation by investors by purchase of stock from the corporation, the primary market, not by purchase of stock in the open market from other st ...
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Share dilution
Stock dilution, also known as equity dilution, is the decrease in existing shareholders' ownership percentage of a company as a result of the company issuing new equity. New equity increases the total shares outstanding which has a dilutive eff ...
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Share premium account
Capital surplus, also called share premium, is an account which may appear on a corporation's balance sheet, as a component of shareholders' equity, which represents the amount the corporation raises on the issue of shares in excess of their par v ...
References
{{Authority control
Corporate law
Financial capital