What Is Share Capital?

Share capital refers to the amount of funding a company raises through the sale of shares of stock to
public investors. This means the company grants shareholders a small ownership stake in the company
in exchange for monetary investment. Share capital constitutes the main source of equity financing and
can be generated through the sale of common or preferred shares.

Common stock is what most people think of when they talk about the stock market. Common, or
ordinary, shareholders have voting rights and participate in major company decisions. Though
companies often pay dividends on common shares, they are not required to pay them.

Preferred shares, also called preference shares, do not entail the same kinds of ownership rights as
common shares. However, they generally include a guaranteed dividend each year that must be paid
before any dividends can be distributed to common shareholders. In short, though preferred
shareholders have fewer rights, they do have a higher claim on company assets.

Though share capital refers to a dollar amount, it is dictated by the number and selling price of a
company's shares. For example, if a company issues 1,000 shares for $25 per share, it generates $25,000
in share capital.

Share capital is only generated by the initial sale of shares by the company to investors. If the investor
goes on to trade those shares to a third party, any profit made on the sale does not contribute to the
issuing company's share capital.

Types of Share Capital

Share capital falls into one of several categories, depending on where the company is in the equity-
raising process. They include:

Authorized Share Capital: The maximum amount of share capital a company is allowed to raise is called
its authorized capital. Though this does not limit the number of shares a company may issue, it does put
a ceiling on the total amount of money that can be raised by the sale of those shares.

Subscribed Share Capital: When a company prepares to "go public" by issuing stock for the first time,
investors can submit an application expressing their desire to participate. Subscribed share capital refers
to the monetary value of all the shares for which investors have expressed an interest.

Issued Share Capital: Issued share capital is simply the monetary value of the shares of stock a company
actually offers for sale to investors. The number of issued shares generally corresponds to the amount of
subscribed share capital, though neither amount can exceed the authorized amount.

Called-Up vs. Paid-Up Share Capital: Depending on the business and applicable regulations, companies
may issue stock to investors with the understanding the investors will pay at a later date. Any funds due
for shares issued but not fully paid for are called-up share capital. Any funds remitted for shares are
considered paid-up capital.