Share capital

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Share capital[1] (or capital stock in US English) refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash.

In its strict sense, as used in accounting, share capital comprises the nominal values of all shares issued (that is, the sum of their par values, as printed on the share certificates). If the allocation price of shares is greater than their par value, e.g. as in a rights issue, the shares are said to be sold at a premium (called share premium, additional paid-in capital or paid-in capital in excess of par). Commonly, the share capital is the total of the aforementioned nominal share capital and the premium share capital.

Sometimes shares are allocated in exchange for non-cash, most commonly when company A acquires company B for shares. Here the share capital is increased to the par value of the new shares, and the merger reserve is increased to the balance of the price of company B.

Besides its meaning in accounting, described above, "share capital" may also be used to describe the number and types of shares that compose a company's share structure. For an example of the different meanings: a company might have an "outstanding share capital" of 500,000 shares (the "structure" usage); it has received for them a total of 2 million dollars, which in the balance sheet is the "share capital" (the accounting usage).

The legal aspects of share capital are mostly dealt with in a jurisdiction's corporate law system. An example of such an issue is that when a company allocates new shares, it must do so in a way that does not inequitably dilute existing shareholders.

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