Definition, Understanding, and Why Share Capital
                     DEFINITION, 
UNDERSTANDING, AND 
WHY SHARE CAPITAL IS 
IMPORTANT?
WHAT IS SHARE CAPITAL?
Share capital is the money a company 
raises by issuing common or preferred 
stock. The amount of share capital or 
equity financing a company has can 
change over time with additional public 
offerings.
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TERM SHARE CAPITAL
The term share capital can mean 
slightly different things depending on 
the context. Accountants have a much 
narrower definition and their definition 
rules on the balance sheets of public 
companies. It means the total amount 
raised by the company in sales of 
shares.
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UNDERSTANDING SHARE CAPITAL
Share capital is reported by a company 
on its balance sheet in the shareholder's 
equity section. The information may be 
listed in separate line items depending 
on the source of the funds. 
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AUTHORIZED SHARE CAPITAL
Before a company can raise equity 
capital, it must obtain permission to 
execute the sale of stock. The company 
must specify the total amount of equity 
it wants to raise and the base value of 
its shares, called the par value.
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ISSUED SHARE CAPITAL
The total value of the shares a company 
elects to sell to investors is called its 
issued share capital. The par value of 
the issued share capital cannot exceed 
the value of the authorized share 
capital.
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SUBSCRIBED SHARE CAPITAL
It comprises of the part of issued share 
capital, which the investors agree upon 
and accept.
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RIGHT SHARES
The shares that are issued to individuals 
after they have invested in equity 
shares are known as right shares. They 
are issued to safeguard existing 
investor’s ownership.
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SHARE CAPITAL AND THE BALANCE 
SHEET
Through the fundamental equation 
where assets equal liabilities plus 
equity, we can see that assets must be 
funded through one of the two. One 
method for a company to fund its assets 
is to create liabilities (borrow money or 
issue debt) and, therefore, create 
obligations that must be paid back. 
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CONTRIBUTED SURPLUS
Contributed Surplus is an accounting 
item that’s created when a company 
issues shares above their par value or 
issues shares with no par value. 
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WHY COMPANY ISSUES EQUITY 
SHARES?
A company tends to invite the general 
public to acquire its shares as a means 
to earn fractional ownership of the 
same. Through such ownership, 
shareholders are entitled to earn returns 
in the form of dividends.
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