Share capital is the money a company raises by issuing common or preferred stock. It's reported on the balance sheet at par value, which is a nominal amount representing the minimum that could be generated per share from a 澳洲幸运5官方开奖结果体彩网:public offering. If the company raises more than par value, which is often the case, these extra pꦅroceeds a🐟re recorded separately as additional paid-in capital.

What Is Share Capital?

Companies need money to operate, grow, and keep investors happy. This money can come from 澳洲幸运5官方开奖结果体彩网:retained earnings, which is what a company has left after covering all its expenses, loans, and other forms of debt. Alternatively, it c🌺an come from issuing equity, which essentially means selling units of own꧙ership in the company to investors in exchange for cash or share capital.

Share capital is a key part of a company’s 澳洲幸运5官方开奖结果体彩网:capital structure. Owners generally don’t like to cede control but it’🦋s often the only way to raise enough funds. 🌼Debt must be paid back and there are limits to how much can be borrowed.

Different Meanings of 'Share Capital'

"Share capital" can have different meanings depending on whom you ask.

The technical accounting definition of share capital is the 澳洲幸运5官方开奖结果体彩网:par value of all stock, including♓ common and preferred shares, sold to investors. This isn’t how much the shares actually sell for or the total proceeds raised, but a nominal figure outlined in the corpor♌ate charter as the minimum that can be sold for in public offerings.

“From a legal perspective, share capital is defined as the nominal value of all the shares in a company,” Mohit Baheti, an accountant based in London, U.K., told Investopedia. “The nominal value, also known as the 'par value' or 'face value,' is the minimum price at which shares can be issued.”

“For example, if a company issues 500 shares with a nominal value of £1 ($1.26) each, the share capital would be £500 ($629.15)," he said. "However, shares are often sold for more than their nominal value. The extra amount… is recorded in a separate… account.”

Share capital's meaning outside the legal and accounting world tends to be looser. Merriam-Webster defines the phrase as “capital received for an interest in the ownership of a business.” Investors often take the everyday meaning to be the price a stock was sold for.

That’s not the case, at least about how share capital is presented on the balance sheet. The difference between the par value and real sale price is called APIC, which isn't technically included in share capital and appears on a different line in the balance sheet.

Share Capital in Financial Statements

Share capital is reported in the equity section of a company’s 澳洲幸运5官方开奖结果体彩网:balance sheet, which appears under liabilities.

Often, there will be a line for 澳洲幸运5官方开奖结果体彩网:preferred stock and 澳洲幸运5官方开奖结果体彩网:common stock. Here, the par value and number of each type of shares issued will be revealed, followe🏅d by the total share capital figure.

Underneath, on the next line, you’ll find APIC. This is where any extra m𓂃oney generated over par value is revealed. The total money raised from public offerings can be calculated by adding additional share capital to share capital.

Types of Share Capital

Authorized Share Capital

Thi♚s is the maximum amount of shares a company is allowed to issue.

When starting out, companies not o⭕nly are required to establish a base value for their shares, called the par value. They also need to set out the maximum amount of shares they can issue. This limits𝓰 how much share capital they can raise.

Company management often chooses to leave a portion of 澳洲幸运5官方开奖结果体彩网:authorized share capital𒀰 untouched so that they have something to tap into for futu♉re financing needs.

Issued Share Capital

Issued share capital is the total amount of shares a company has sold. Typically, issued shares are the same as 澳洲幸运5官方开奖结果体彩网:outstanding shares, representing all shares in circulation. However, exceptions exist, such as when a company 澳洲幸运5官方开奖结果体彩网:repurchases its shares.

Paid-in Capital

澳洲幸运5官方开奖结果体彩网:Paid-in capital is the cash a compa🦹ny has received in🉐 exchange for its common or preferred stock issues. It includes par value and the APIC.

How Companies Raise Share Capital

Share capital is generated when a company does an initial public offering (IPO). Going public presents an opportunity to raise lots of money by selling shares of ownershi༺p in the company.

Transitioning from a 澳洲幸运5官方开奖结果体彩网:private to a public company is a long pꦏrocess. A key starting point is choosing one or several banks to price the company’s shares and market, advertise, and underwrite the offering.

When all the paperwork is in place and there’s enough interest, the company sells its newly created shares to large investors on the 澳洲幸运5官方开奖结果体彩网:primary market. The proceeds from this sale are recorded on the balance sheet, and the shares are accessible to the general public, who can then trade them among themselves on the secondary market.

Issuing More Shares

A publicly traded company can later issue extra shares to raise more money. Usually, this involves creating new shares of stock. Additional stock issues can be controꩲversial as they dilute current shareholder holdings. However, if the company is highly leveraged, it may represent the only option to raise needed funds. 

The proceeds from additional offerings add to the company’s paid-in capital and share capital.

Example of Share Capital

Let’s have a look at Best Buy Co. Inc.’s (BBY) balance sheet.

As of Feb. 3, 2024, the consumer electronics retailer had $22 million in share capital, which is calculated by multiplying the relevant par value ($0.10) by the number of shares outstanding (218.1 million). You can also see that share capital came from the issuance of common stock—the company is authorized to issue preferred stock but, as of this balance sheet, hadn’t yet done so.

The common stock par value used to compute share capital is noticeably much lower than Best Buy’s actual share price. On the following line, we can also note the $31 million generated from additional public offerings. This indicates that the shares sold for significantly more than par value and that Best Buy raised from public offerings, or its paid-in capital, was about $53 million.

The Bottom Line

Money raised from IPOs and subsequent offerings is a key source of company funding. Colloquially, these proceeds are called sha♒re capital. However, technically, the correct phras♓e is paid-in capital.

According to accountants and the balance sheet, share capital is the par value, a nominal amount representing the minimum that could be raised per share from a public offering of all shares ✱issued. Usually, the total generated from public offerings is much higher, as revealed lower down in the balance sheet.