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 finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
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-immed ...
. "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 (that is, the sum of their
par values, 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, 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,
United Kingdom company law, 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
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Capital impairment
Capital impairment is the case when the company lost its asset, so the asset is lower than the stock of a company. One way to avoid capital impairment is reduction of capital without any compensation.
See also
*Bankruptcy
*Reduction of capital Re ...
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Market capitalization
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Paid in capital
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Share dilution
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Share premium account
References
{{Authority control
Corporate law
Financial capital