What is share capital?
So there is a common question frequently asked as to what share capital really means. Here is a detailed answer to that question.
Share capital consists of all funds raised by a company in exchange for shares of either common or preferred shares of stock. The amount of share capital or equity financing a company has can change over time. A company that wishes to raise more equity can obtain authorization to issue and sell additional shares, thereby increasing its share capital.
With share capital, the amount a company reports on its balance sheet only accounts for the total amount initially paid by shareholders. If those shareholders later resell their shares on the secondary market, any difference between the initial and subsequent sales prices does not impact the company’s share capital.
It is worthy of note that the term “share capital” is often used to mean slightly different things, depending on the context. When discussing the amount of money a company can legally raise through the sale of stock, there are actually several categories of share capital. Accountants have a much narrower definition.
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