Share capital

Definition

In accounting, the share capital of a corporation is the nominal value of issued shares (that is, the sum of their par values, sometimes indicated on share certificates). If the allocation price of shares is greater than the par value, as in a rights issue, the shares are said to be sold at a premium (variously called capital surplus or share premium, additional paid-in capital or paid-in capital in excess of par).

This equation shows the constituents that make up a company's real share capital: : \sum\text{Share capital = Number of shares issued} \times \text{(Par value + Share premium)}

This is differentiated from share capital in the accounting sense, as it presents nominal share capital and does not take the premium value of shares into account, which instead is reported as additional paid-in capital.

Legal capital

Legal capital is a concept used in European corporate and foundation law, United Kingdom company law, and various other corporate law jurisdictions to refer to the sum of assets contributed to a company by shareholders when they are issued shares. The law often requires that this capital is maintained and that dividends are not paid when a company is not showing a profit above the level of historically recorded legal capital.

References

References

1. (December 13, 2022). "Share Premium Account". Corporate Finance Institute.
2. Thakur, Madhuri. (August 29, 2020). "Legal Capital". CFA Institute.