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Share Capital
Written by Kenny Foo   
Friday, 06 March 2009 17:08

Share capital, issue capital or capital stocks are the funds raised by the company through the issuance of stock to investors.

Companies will obtain cash from investors for business expansion while the investors obtain the stock from the companies to share future earnings and profit from the companies. Hence, this is known as equity financing. Instead of borrow money from bank, which will be charged for interest, companies obtain the money from investors. The amount of share capital or capital stocks recorded in the balance sheet can change anytime whenever the companies issue new shares to public in exchange for cash. In this case, the share capital or capital stocks in balance sheet will increase.

The amount of share capital or capital stocks in balance sheet only accounts the initial amount for which the original shareholders purchased the shares from the issuing company. Without additional issuance of share, the changes on the stock price as result of transactions on stock market will not reflected in the share capital or capital stocks in balance sheet. For instance, Corporation A issues 500,000 shares with $1 each share to raise $500,000 in its initial public offering. After a year, the stock price on the stock market had increase to $2, but the share capital or capital stocks in the balance sheet will still remain $500,000 as corporation A had sold the share to public in the initial public offering one year ago.

Share capital or capital stocks can used to obtain shareholders equity or net assets by adding up retained profit and exclude treasury stock.



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Last Updated ( Friday, 06 March 2009 17:38 )
 
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