Share capital
A corporation's share capital is the component of a company's equity that has been obtained through the issuing of shares in the corporation to a shareholder, often in exchange for cash. In the United States, this element of a corporation's equity is more generally referred to as capital stock. The term "share capital" may also refer to the number of shares and the different kinds of shares that make up the share structure of a firm.
According to the principles of accounting, the share capital of a company is equal to the nominal value of all of the shares that have been issued (that is, the sum of their par values, sometimes indicated on share certificates). It is argued that the shares were sold at a premium if the allocation price of those shares was more than the par value, as is the case in a rights issue (variously called share premium, additional paid-in capital or paid-in capital in excess of par). The entire amount of the nominal share capital as well as the premium share capital is often what is referred to as the share capital. If a corporation is authorised to issue shares at a value that is lower than its par value, these shares are referred to as being issued at a discount or part-paid depending on the jurisdiction in where the firm is located.
There are instances in which shares are issued in return for anything other than cash, the most typical of which is when company A buys corporation B in exchange for shares (new shares issued by corporation A). In this scenario, the share capital is raised to reflect the par value of the newly issued shares, and the merger reserve is increased to reflect the difference between the original price of company B and the new price of the merged entity.
It is possible for a business to issue shares that have no par value since share par values have been eliminated from certain jurisdictions entirely or rendered voluntary in others. In such scenario, from an accounting point of view, the whole share capital of the firm is considered to be premium.
Legal capital is a notion that is used in European corporate and foundation law, United Kingdom company law, and numerous other corporate law countries to refer to the total amount of assets that shareholders provide to a business in exchange for shares. When a corporation is not generating a profit that is greater than the amount of historically recorded legal capital, the law often mandates that this capital be preserved and that dividends not be distributed to the shareholders of the company.