A corporation's share capitalor capital stock (in US English) is the portion of a corporation's equity that has been obtained by the issue of shares in the corporation to a shareholder, usually for cash. "Share capital" may also denote the number and types of shares that compose a corporation's share structure.
A corporation is an organization, usually a group of people or a company, authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration. Corporations enjoy limited liability for their investors, which can lead to losses being externalized from investors to the government or general public, while losses to investors are generally limited to the amount of their investment.
In financial markets, a share is a unit used as mutual funds, limited partnerships, and real estate investment trusts. The owner of shares in the corporation is a shareholder of the corporation. A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares.
In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and finance, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately. Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash flow or as a way to avoid a downturn on financial markets.
In a strict accounting sense, share capital is the nominal value of issued shares (that is, the sum of their par values, as indicated on share certificates). If the allocation price of shares is greater than their par value, as in a rights issue, the shares are said to be sold at a premium (variously called share premium , additional paid-in capital or paid-in capital in excess of par). Commonly, the share capital is the total of the aforementioned nominal share capital and the premium share capital. Conversely, when shares are issued below par, they are said to be issued at a discount or part-paid.
Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used as synonyms.
Issued shares is a term of law and finance for the number of shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders. The act of creating new issued shares is called issuance, allocation or allotment. Allotment is simply the creation of shares and their transfer to a subscriber. After allotment, a subscriber becomes a shareholder, though usually that also requires formal entry in the share registry.
Par value, in finance and accounting, means stated value or face value. From this come the expressions at par, over par and under par.
Sometimes, shares are allocated in exchange for non-cash consideration, most commonly when corporation A acquires corporation B for shares (new shares issued by corporation A). Here the share capital is increased to the par value of the new shares, and the merger reserve is increased to the balance of the price of corporation B.
In practice, the concept of "par value" has very little meaning, since shares usually represent a residual claim; they do not endow their owners with a claim toward any fixed sum of money. In some jurisdictions, share par values have been either abolished or made optional, so a corporation can issue shares having no par value. In that case, from an accounting perspective, all of the corporation's share capital is premium.
Besides its meaning in accounting, described above, "share capital" may also describe the number and types of shares that compose a corporation's share structure. A corporation might have an "outstanding share capital" of 500,000 shares (the "structure" usage); it has received for them a total of 2 million dollars, which is the "share capital" in the balance sheet (the accounting usage).
The legal aspects of share capital are mostly dealt with in a jurisdiction's corporate law system. An example of such an issue is that when a company allocates new shares, it must do so without inequitably diluting its existing shareholders.
Corporate law is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. It refers to the legal practice relating to, or the theory of corporations. Corporate law often describes the law relating to matters which derive directly from the life-cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.
Legal capital is a concept used in UK company law, EU company law, and various other corporate law jurisdictions to refer to the sum of assets contributed to a company by shareholders when they are issued shares. The law often requires that this capital is maintained, and that dividends are not paid when a company is not showing a profit above the level of historically recorded legal capital.
In the UK, a public limited company must have a minimum legal capital of £50,000. There is no such requirement for a private company.
A public limited company is a type of public company under United Kingdom company law, some Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company whose shares may be freely sold and traded to the public, with a minimum share capital of £50,000 and usually with the letters PLC after its name. Similar companies in the United States are called publicly traded companies. Public limited companies will also have a separate legal identity.
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business and pay a proportion of the profit as a dividend to shareholders. Distribution to shareholders may be in cash or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.
In accounting, equity is the difference between the value of the assets and the value of the liabilities of something owned. It is governed by the following equation:
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as Government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
A shareholder is an individual or institution, including a corporation,that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation. Legally, a person is not a shareholder in a corporation until their name and other details are entered in the corporation‘s register of shareholders or members. A beneficial shareholder is the person that has the economic benefit of ownership of the shares, while a nominee shareholder is the person who is on the corporation’s register as the owner while being in fact acting for the benefit and at the direction of the beneficiary, whether disclosed or not.
In accounting, book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or impairment costs made against the asset. Traditionally, a company's book value is its total assets minus intangible assets and liabilities. However, in practice, depending on the source of the calculation, book value may variably include goodwill, intangible assets, or both. The value inherent in its workforce, part of the intellectual capital of a company, is always ignored. When intangible assets and goodwill are explicitly excluded, the metric is often specified to be "tangible book value".
In finance, a convertible bond or convertible note or convertible debt is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features. It originated in the mid-19th century, and was used by early speculators such as Jacob Little and Daniel Drew to counter market cornering.
A treasury stock or reacquired stock is stock which is also bought back by the issuing company, reducing the amount of outstanding stock on the open market.
Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently in other parts of the world; "common stock" being primarily used in the United States. They are known as Equity shares or Ordinary shares in the UK and other Commonwealth realms. This type of share gives the stockholder the right to share in the profits of the company, and to vote on matters of corporate policy and the composition of the members of the board of directors.
In economics and accounting, the cost of capital is the cost of a company's funds, or, from an investor's point of view "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
The retained earnings of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. At the end of that period, the net income at that point is transferred from the Profit and Loss Account to the retained earnings account. If the balance of the retained earnings account is negative it may be called accumulated losses, retained losses or accumulated deficit, or similar terminology.
Enterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value of a business. It is a sum of claims by all claimants: creditors and shareholders. Enterprise value is one of the fundamental metrics used in business valuation, financial modeling, accounting, portfolio analysis, and risk analysis.
Capital surplus, also called share premium, is an account which may appear on a corporation's balance sheet, as a component of shareholders' equity, which represents the amount the corporation raises on the issue of shares in excess of their par value of the shares.
Paid in capital, paid-in capital or paid up capital, or contributed capital is capital that is contributed to a corporation by investors by purchase of stock from the corporation, the primary market, not by purchase of stock in the open market from other stockholders. It includes share capital as well as additional paid-in capital.
In financial accounting, "reserve" always has a credit balance and can refer to a part of shareholders' equity, a liability [Reserve for Claims better called Liability for Estimated Claims], or an asset contra account [Reserve of Uncollectible Accounts, better called Allowance for Uncollectible Accounts].
A control premium is an amount that a buyer is sometimes willing to pay over the current market price of a publicly traded company in order to acquire a controlling share in that company.
The stock of a corporation is all of the shares into which ownership of the corporation is divided. In American English, the shares are commonly called stocks. A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.
Corporate finance is an area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value. Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.