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A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived 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.
In accounting, the share capital of a corporation is the nominal value of issued shares (that is, the sum of their par values, sometimes indicated on share certificates). If the allocation price of shares is greater than the 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).[ citation needed ]
This equation shows the constituents that make up a company's real share capital:
This is differentiated from share capital in the accounting sense, as it presents nominal share capital and does not take the premium value of shares into account, which instead is reported as additional paid-in capital. [1]
Legal capital is a concept used in European corporate and foundation law, United Kingdom 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. [2] 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. [2]
A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business. The current year profit as well as the retained earnings of previous years are available for distribution; a corporation is usually prohibited from paying a dividend out of its capital. 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 by share repurchase. In some cases, the distribution may be of assets.
In finance, equity is an ownership interest in property that may be offset by debts or other liabilities. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets owned. For example, if someone owns a car worth $24,000 and owes $10,000 on the loan used to buy the car, the difference of $14,000 is equity. Equity can apply to a single asset, such as a car or house, or to an entire business. A business that needs to start up or expand its operations can sell its equity in order to raise cash that does not have to be repaid on a set schedule.
A shareholder of corporate stock refers to an individual or legal entity that is registered by the corporation as the legal owner of shares of the share capital of a public or private corporation. Shareholders may be referred to as members of a corporation. A person or legal entity becomes a shareholder in a corporation when their name and other details are entered in the corporation's register of shareholders or members, and unless required by law the corporation is not required or permitted to enquire as to the beneficial ownership of the shares. A corporation generally cannot own shares of itself.
In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the company's liability to pay a specified amount with interest. Although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.
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.
A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.
Incorporation is the formation of a new corporation. The corporation may be a business, a nonprofit organization, sports club, or a local government of a new city or town.
A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market.
Preferred stock is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are senior to common stock but subordinate to bonds in terms of claim and may have priority over common stock in the payment of dividends and upon liquidation. Terms of the preferred stock are described in the issuing company's articles of association or articles of incorporation.
A private limited company is any type of business entity in "private" ownership used in many jurisdictions, in contrast to a publicly listed company, with some differences from country to country. Examples include the LLC in the United States, private company limited by shares in the United Kingdom, GmbH in Germany and Austria, Besloten vennootschap in The Netherlands, société à responsabilité limitée in France, and sociedad de responsabilidad limitada in the Spanish-speaking world. The benefit of having a private limited company is that there is limited liability.
A corporate tax, also called corporation tax or company tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax.
Corporate law is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corporations, or to 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.
Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or joint venture. If a company that provides limited liability to its investors is sued, then the claimants are generally entitled to collect only against the assets of the company, not the assets of its shareholders or other investors. A shareholder in a corporation or limited liability company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any, except under special and rare circumstances permitting "piercing the corporate veil." The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business.
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.
In finance and accounting, par value means stated value or face value of a financial instrument. Expressions derived from this term include at par, over par and under par.
A kabushiki gaisha or kabushiki kaisha, commonly abbreviated K.K. or KK, is a type of company defined under the Companies Act of Japan. The term is often translated as "stock company", "joint-stock company" or "stock corporation". The term kabushiki gaisha in Japan refers to any joint-stock company regardless of country of origin or incorporation; however, outside Japan the term refers specifically to joint-stock companies incorporated in Japan.
In economics and law, issued shares are the 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. Allotment is simply the transfer of shares to a subscriber. After allotment, a subscriber becomes a shareholder, though usually that also requires formal entry in a share registry.
Bonus shares are shares distributed by a company to its current shareholders as fully paid shares free of charge.
Stocks consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the shareholder (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.
A private company limited by shares is a class of private limited company incorporated under the laws of England and Wales, Hong Kong, Northern Ireland, Scotland, certain Commonwealth jurisdictions and the Republic of Ireland. It has shareholders with limited liability and its shares may not be offered to the general public, unlike those of a public limited company.
