What is share capital? Definition and examples

When investors buy equity capital, it is called contributed capital.

What is share capital?

Share capital represents the total number of shares issued by a company. For a publicly traded company, this is the number of common shares and preferred shares issued. Share capital is called paid-up capital when investors invest their money in a company and receive shares in return.

The number of common and preferred shares can be found in the equity section of a company’s balance sheet. For listed companies, the balance sheet is part of the quarterly or annual report filed with the Securities and Exchange Commission. Some companies, however, only have common stock. Yet each company has its own method of registering share capital and its own use of terms.

How is share capital different from authorized stock?

While share capital is the stock that a company sells, authorized stock, as the name suggests, is the number of shares legally authorized by a company. When a corporation is legally incorporated or a corporation establishes its charter in a state, it shows the total number of shares that its senior management has authorized it to issue. Thus, the share capital cannot exceed the authorized stock, which is the broadest category of shares.

An infographic showing that "Authorized" is the broadest class of shares and includes both "Treasury" shares and "Exceptional" shares and that "Exceptional" actions include both "Limit" and "Float" shares.

The number of shares issued in share capital may not exceed the number of authorized shares.

How is social capital assessed?

The value of the share capital is generally a combination of its contributed capital based on the par value and its additional contributed capital.

A company typically sets the par value of its common stock at a minimum, usually well below the offering price at the time of their IPO, for accounting purposes. Par value is a nominal figure, to show that shares are accounted for as equity, and also to meet a state government’s requirement that shares cannot be sold below par . The face value of preferred stock, on the other hand, may be different from that of common stock because dividends paid to preferred stockholders are calculated based on the face value. Yet, for some companies, the face value of common and preferred stock is the same. In other cases, preferred shares have no par value.

Additional contributed capital is the difference between what is paid by investors for a company’s stock at market value and its face value at the time of its IPO, or what is known as equity capital. contribution above face value. The additional paid-up capital is generally used to offset the stock at face value. Some companies, however, only list shares at face value and do not list additional contributed capital because they have not issued new shares or repurchased shares. Some companies have separate entries for contributed capital (paid-up capital) and additional paid-up capital, while others may combine the two into one.

When a company decides to sell new shares (via an additional or secondary offering) or to buy back shares, the amount of share capital changes and is recorded for this period.

To note: Each time a company sells new shares to raise capital, it dilutes the value and voting rights of the shares held by existing ordinary shareholders.

Ordinary shares that are repurchased may be set aside by the company as treasury shares, which may be listed as a separate negative item as they are treated as a counter-equity account (against the released shares) in the equity.

Are treasury shares included in the share capital?

Treasury shares are shares that have been issued by a company and subsequently redeemed. This stock is no longer part of outstanding stock and a company can use it for employee compensation (stock options, awards, etc.). Treasury shares are still part of the issued shares but have restrictions such as no voting rights and no right to payment of dividends. When a company buys back shares in the open market, the treasury shares are recorded as a contra account in the equity section of the balance sheet.

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TheStreet Dictionary Terms

Examples of social capital: Apple (NASDAQ: AAPL) and Netflix (NASDAQ: NFLX)

Below is Apple’s recording of its common stock and additional contributed capital as a single item on its balance sheet. The par value of its common stock is set at 1/1000 of a cent, which means that legally Apple’s listed share price cannot fall below that par value. An expanded entry shows the opening and ending balances of its share capital to reflect the shares that have been awarded to employees as compensation.

All figures except percent change and face value are in millions of dollars and are from Apple’s 10-K.

Apple 2021 % Switch 2020

Equity:

Common shares and contribution premium, par value of $0.00001: 50,400,000 shares authorized; 16,426,786 and 16,976,763 shares issued and outstanding, respectively

57,365

13

50,779

Retained earnings

5,562

-63

14,966

Accumulated other comprehensive income

163

N / A

-406

Total equity

63,090

-3.4

65,339

All figures except percentage change and face valueare expressed in millions of dollars and come from Apple’s 10-K.

Apple 2021 % Switch 2020

Total equity, opening balances

65,339

-28

90,488

Ordinary shares and issue premiums:

Opening sales

50,779

12

45,174

Common shares issued

1,105

26

880

Common Shares Retained Related to Net Equity Settlement of Equity Awards

(2,627)

N / A

(2,250)

Stock-based compensation

8,108

16

6,975

Closing balances

57,365

13

50,779

Below is Netflix’s equity, in which it combines its share capital and share premium. Preferred shares are a separate line item, but they are left blank because, although there were authorized shares, none were issued. The issue premium and the issue premium are entered on a single line. Meanwhile, Netflix has a separate entry for treasury stock, which is a counter-equity account to show that stock has been redeemed and cashed in for 2021.

All figures except percent change and face value are in thousands of dollars and are from Netflix’s 10-K.

netflix 2021 % Switch 2020

Equity:

Preferred shares, par value $0.001; 10,000,000 shares authorized as of December 31, 2021 and December 31, 2020; no shares issued and outstanding as of December 31, 2021 and December 31, 2020

Ordinary shares, par value 0.001; 4,990,000,000 shares authorized as of December 31, 2021 and December 31, 2020; 443,963,107 and 442,895,261 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

4,024,561

17

3,447,698

Treasury shares at cost (1,564,478 shares as of December 31, 2021)

(824,190)

N / A

Accumulated other comprehensive income

(40,495)

N / A

44,398

Retained earnings

12,689,372

68

7,573,144

Full shareholder equity

15,849,248

43

11,065,240

Apple and Netflix have their own approach to recording share capital on their balance sheets, and other companies will likely follow their own formats, whether they combine share capital and additional contributed capital into one entry or create separate ones. .

Frequently Asked Questions (FAQ)

Here are answers to some of the most frequently asked questions by investors about equity.

What is the difference between paid-up capital and share capital?

Capital shares are called paid-up capital when investors buy the shares of a company.

How is additional contributed capital different from share capital?

Additional contributed capital, or share premium, is the amount paid for shares above the par value of shares issued at the time of a company’s offering.

Does the current price of a stock affect its contributed capital?

No, stocks that trade on the open market do not affect a company’s paid-up capital, since paid-up capital is recorded at the time of a company’s IPO.

Are the issued shares also outstanding?

It depends on the company issuing the shares. A company may have more shares issued than outstanding, and the difference may be held as treasury stock.

Can social capital be negative?

Common and preferred shares have a nominal value which corresponds to the par value of the shares. The price of a stock can technically drop to zero on the open market, depending on the rules of the state where it was incorporated, but cannot be negative.

Can social capital increase?

Yes, when a company issues new common or preferred stock, usually to raise capital, after its IPO, the number of shares issued increases.

Sallie R. Loera