In financial markets, a stock is a unit used as a mutual fund, limited partnership, and real estate investment trust. Share capital refers to all shares in the company. Shareholders in the company are shareholders of the company.
Shares are an indivisible unit of capital that expresses the ownership relationship between the company and the shareholders. The par value of shares is their nominal value and the aggregate nominal value of outstanding shares represents the company’s equity which may not reflect the market value of the shares.
The income from owning shares is dividends. There are different types of stocks such as share capital, preferred stock, deferred stock, redeemable stock, bonus stock, share capital and employee stock option plans.
Shares are valued on different principles in different markets, but the basic premise is that shares are worth the price at which a transaction might occur if the shares were sold.
Market liquidity is an important consideration of whether a stock can be sold at any given time. The actual sale of shares between buyers and sellers is generally considered the best market indicator of the stock’s “true value” at a given point in time.
Historically, investors were given share certificates as evidence of their ownership of shares. In modern times, certificates are not always given and ownership may be recorded electronically by a system such as CREST or DTCC, a central securities depository.
- Shares outstanding are those that are authorized by the government, issued by the company, and held by third parties. The number of shares outstanding times the share price gives the market capitalization of the company, which if the trading price held constant would be sufficient to purchase the company.
- Treasury shares are authorized, issued, and held by the company itself.
- Issued shares is the sum of shares outstanding and treasury shares.
- Shares authorized include both issued (by the board of directors or shareholders) and unissued but authorized by the company’s constitutional documents.
What is Share capital?
A company’s share capital, commonly referred to as capital stock in the United States, is the portion of a company’s equity that is acquired by issuing company stock to shareholders, usually for cash. “Share capital” can also refer to the number and types of shares that make up a company’s stock structure.
In accounting terms, a company’s equity is the par value of the shares issued. When the share grant price is higher than par, as in a rights issue, the shares are said to be sold at a premium.
Share capital is usually the sum of nominal share capital and premium share capital. Most jurisdictions do not allow companies to issue shares below par, but where permitted, the shares are issued at a discount or partially paid.
Sometimes shares are issued in kind, most often when Company A acquires Company B in exchange for shares. The share capital is increased to the par value of the new shares and the combined reserve becomes the balance sheet price of company B.
In practice, the term “par value” has little meaning, as shares are usually a residual claim; they do not entitle the owner to a certain amount of money. In some jurisdictions, par value shares are waived or optional, allowing companies to issue shares without par value. In this case, from an accounting point of view, the entire share capital of the corporation is at a premium.