Share capital refers to the funds raised by a company through the sale of its shares to investors in order to finance its activities and operations. It represents the amount of money invested by shareholders in exchange for ownership stakes or shares in the company.
Share capital is an essential component of a company’s capital structure and is recorded as a liability on the company’s balance sheet. It reflects the initial amount of capital that the company has raised to start or expand its business operations. The shareholders who purchase shares are the owners of the company and have certain rights and privileges such as voting on major company decisions and receiving dividends.
Share capital can be categorized into different types such as authorized share capital, issued share capital, and subscribed share capital. Authorized share capital is the maximum amount of capital that a company is permitted to raise from the sale of its shares. Issued share capital refers to the actual amount of shares that have been offered to shareholders by the company and have been purchased by them. Subscribed share capital, on the other hand, refers to the portion of the issued share capital that has been subscribed or purchased by the shareholders.
In summary, share capital is the financial investment made by shareholders in a company in exchange for ownership in the form of shares. It provides a source of funding and capital for the company's operations and growth.
The word "share capital" is derived from two separate words, "share" and "capital".
- "Share" comes from the Old English word "scearu", meaning "division" or "portion". It later evolved in Middle English to refer to the "portion or part owned or allotted to one person from a larger whole" or "any of the equal parts into which a company's capital is divided".
- "Capital" comes from the Latin word "capitalis", meaning "of the head" or "chief". It originally referred to "wealth that is available to invest or start a business" and has since expanded to encompass various meanings related to finances and assets.
When combined, "share capital" refers to the total amount of capital, typically in the form of stocks or shares, that a company has divided and issued among its shareholders as ownership stakes.