Share capital is that component of the equity of a company, which has been raised or would be raised through issues of stocks or shares to the shareholders in exchange of money or any other items which has capital value. Share capital is sometimes referred to as issued capital. In order to clarify, an example can be given.
A joint stock company has the option to earmark share capital for the purpose of exchanging with computer servers rather than buying the computer servers utilizing the current equity.
Share capital can be broadly categorized into the following two types:
Authorized Share Capital
The authorized share capital of a joint stock company refers to the highest amount of share capital that has been authorized by the constitutional documents or charter of documents (i.e., the Articles of Association and the Memorandum of Association) of the company for the purpose of issuance to shareholders. A portion of the authorized capital can be kept unissued and this is often a custom.
The issued share capital of the company is that portion of the authorized capital of the company, which is issued to the shareholders.
Sometimes, the authorized share capital is known as nominal capital or authorized capital (especially in the U.S.).
Issued Share Capital
The issued share capital of a joint stock company refers to the aggregate of the nominal value of shares issued to the shareholders, as well as the outstanding shares (the shares which have not been paid off or bought back for the purpose of keeping in treasury).
This type of shares clubbed with share premium account constitutes the total investment held in the company by the shareholders.
The authorized share capital might be more than the issued share capital simply because of the reason that authorized share capital represents the aggregate value of the shares ready to be issued by the company.
Last Updated on : 26th June 2013