What Is Share Capital?

What Is Share Capital?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Share capital refers to the funds that a company raises in exchange for issuing an ownership interest in the company, such as shares of stock. The way it works is that a company sells a part of its ownership, in the shape of shares, to raise money for various purposes such as starting a new project, expanding the business, or paying debts. This capital becomes part of the company’s equity. Different types of share capital include authorized share capital, issued share capital, and paid-up capital.

Related Questions

1. What is authorized share capital?

Authorized share capital is the maximum amount of shares that a company is allowed to issue to its shareholders. This number is initially defined in the company‚Äôs constitution and can only be changed with shareholders’ approval.

2. What is issued share capital?

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Issued share capital refers to the value of shares that have been issued to shareholders. This might be less than the authorized share capital as a company doesn’t have to issue all their shares at once.

3. What is paid-up capital?

Paid-up capital is the amount of money a company has received from shareholders in exchange for shares of stock. Paid-up capital indicates the portion of the authorized capital for which shares have been issued and payment has been received in full.

4. How is share capital calculated?

Share capital is calculated by multiplying the number of issued shares by the nominal value of each share.

5. Can share capital be decreased?

Yes, share capital can be decreased. There are many reasons for decreasing share capital, such as business losses or reorganization. However, companies should tread carefully as this might affect the company’s credibility and share price.