Share Capital

Share capital is a crucial component of a company's finances, received from its owners or shareholders in exchange for shares. It represents the equity funding that a company relies on to conduct its operations and grow.
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Share Capital

Share capital, also known as equity capital, refers to the funds that a company receives from issuing shares to its shareholders. This capital represents the ownership stake that shareholders have in the company. The funds from share capital are crucial for the company as they can be used for various purposes, including expanding operations, funding new projects, and managing day-to-day operations.

Examples of Share Capital

  1. Initial Public Offering (IPO): When a company goes public, it issues shares to the public for the first time. The money received from selling these shares forms part of the share capital.
  2. Rights Issue: A company might need additional funds and decide to offer more shares to existing shareholders. The funds raised from this issuance add to the company’s share capital.
  3. Private Placement: A company may issue additional shares to a specific group of investors, such as venture capitalists, raising more share capital.

Frequently Asked Questions

What is the difference between issued share capital and authorized share capital?

Issued share capital refers to the total value of shares that have been allotted to shareholders, whereas authorized share capital is the maximum amount of capital that a company is allowed to issue, as specified in its corporate charter.

Can a company operate without share capital?

No, share capital is essential for a company as it provides the initial funding required to start the operations and also reflects the ownership interest of the shareholders.

What is called-up share capital?

Called-up share capital is the portion of the subscribed share capital that the company has demanded (called-up) for payment from the shareholders.

How does paid-up share capital differ from called-up share capital?

Paid-up share capital is the amount that shareholders have actually paid for the shares they have subscribed to, whereas called-up share capital is the portion that has been demanded by the company but may not yet be fully paid.

Is share capital the same as shareholders’ equity?

Share capital is a component of shareholders’ equity. Shareholders’ equity includes share capital plus retained earnings and other reserves.

  1. Authorized Share Capital: The maximum amount of capital that a company is authorized to raise through the issuance of shares.
  2. Called-up Share Capital: The amount of share capital that the company has requested from shareholders to be paid.
  3. Issued Share Capital: The portion of authorized capital that has been allotted to shareholders.
  4. Paid-up Share Capital: The amount of called-up capital that shareholders have actually paid.

Online References

Suggested Books for Further Studies

  • Corporate Finance by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey F. Jaffe
  • Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston
  • Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, and Franklin Allen

Accounting Basics: “Share Capital” Fundamentals Quiz

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