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Share Capital

Reviewed by Sujaini | Updated on Sep 30, 2020

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What is Share Capital?

Share capital is the money that a company raises through the issuance of common or preferred stock. With additional public offerings, the amount of share capital or equity financing that a firm has can change over time.

Depending on the context, the term share capital can mean somewhat different things. Accountants have a much more narrow definition of their rules for defining public company balance sheets. In this context, share capital means the total amount raised by the company in sales of shares.

Share Capital Break Down

Share capital is reported by a firm in the shareholder's equity section on its balance sheet. Depending on the fund source, the information may be listed in separate line items. Those usually include a common stock line, another one for preferred stock, and the third one for additional paid-in capital. At the time of sale, common stock and preferred stock shares will be listed at their par value.

The stock sales proceeds are listed at their nominal par value on a balance sheet, while the "additional paid-in capital" line reflects the real price paid over par for the shares.

The amount of share capital published by a company contains only the payments made directly from the company for acquisitions. The later sales and acquisitions of those securities and the rising or falling rates on the open market have no impact on the share capital of the company.

A company may opt to have more than one public offering after it's Initial Public Offering (IPO). The proceeds of those later sales would increase the share capital on its balance sheet.

Depending on the context, the word "share capital" is often used to mean slightly different things. There are several types of share capital when considering the amount of money that a company can legally raise through the selling of shares.

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