Share capital, also known as equity capital or registered capital, is the amount of money that a company raises by issuing shares of stock to investors. This money is used to finance the company’s operations, invest in new projects, and pay dividends to shareholders. Share capital represents the ownership of a company, and shareholders are entitled to a proportionate share of the company’s profits and assets. The total amount of share capital is divided into a specific number of shares, each with a specific value, and these shares are then sold to investors.
Kinds of Share Capital
There are two main types of share capital:
- Authorized Capital: This is the maximum amount of share capital that a company is authorized to issue, as specified in its articles of incorporation. This amount represents the maximum amount of money that the company can raise through the issuance of shares.
- Issued Capital: This is the portion of the authorized capital that has been issued to shareholders, either through an initial public offering (IPO) or a subsequent issue of shares. Issued capital represents the actual amount of money that the company has raised from investors.
In addition to these two main types of share capital, there are also several sub-types of shares, each with their own specific characteristics and rights. Some examples include common shares, preferred shares, and stock options.
- Common Shares: These are the most basic type of shares, and they typically give shareholders the right to vote on company matters and receive dividends.
- Preferred Shares: These shares have priority over common shares when it comes to dividends and assets in the event of liquidation.
- Stock Options: These are the options given to employees or other stakeholders to buy shares at a later date at a pre-determined price.
