What the share capital consists of. Share capital: structure, formation and management. How employees can participate in share capital

SHARE CAPITAL

(share capital, equity capital) 1. That part of the capital (capital) of the company, which is mobilized as a result of the issue of shares (shares). All companies must start operating with some share capital (represented by at least two shares). Statutory share capital(authorized share capital), authorized capital (registered capital) or nominal capital (nominal capital) of a company is the maximum amount for which a company has the right to issue shares in accordance with its charter. An issued share capital, or a subscribed share capital, is a portion of the authorized capital that future shareholders have subscribed to. If the bids have covered the entire value of the shares at par (par value), we are talking about fully paid share capital. If the shareholders subscribe only to a part of the issued share capital, such capital is called called-up capital. In some cases, capital subscriptions are made on demand, by distribution, or on a gradual basis. Shares are considered fully paid only after the last installment has been made. Cm. same: reserve capital. 2. A portion of the company's share capital held by ordinary shareholders, although in some cases, such as pre-emption rights, shares belonging to other classes of shareholders may also be included in the share capital, as a result of which they receive the right to a share in the profits of the company and any additional assets upon liquidation. Cm. same: A shares.

Finance. Dictionary... 2nd ed. - M .: "INFRA-M", Publishing house "Ves Mir". Brian Butler, Brian Johnson, Graham Sidwell, et al. General editorial: Ph.D. Osadchaya I.M.. 2000 .

SHARE CAPITAL

SHARE CAPITAL - the share capital of a joint stock company, formed through the issue of shares. Distinguish between: fixed capital, the size of which is recorded in the Charter; subscription - mobilized by subscription; paid - paid at the time of subscription. It is possible to issue constituent shares in an amount that significantly exceeds the real value of the company's assets. The excess constitutes the founder's profit, which forms the additional capital of the company.

Glossary of financial terms.

Share capital

Share capital - the capital of a joint stock company formed by issuing shares and bonds. Share capital is the property of a joint stock company.
Share capital = authorized capital+ any capital received from retained earnings of previous periods, the sale of shares above par, etc.

In English: Shareholders \ "equity

Synonyms: Equity, Net Worth

English synonyms: Capital stock, Equity capital

Finam Financial Dictionary.

Share capital

Finam Financial Dictionary.

Share capital

That part of the company's capital that is mobilized as a result of the issue of shares. The authorized capital of a company is the maximum amount for which a company is entitled to issue shares in accordance with its charter.

The share capital of a joint-stock company, the size of which is determined by its charter. Formed by borrowed money and the issue (issue) of shares, through the issue and sale of shares.

Terminological Dictionary of Banking and Financial Terms. 2011 .

See what "SHARE CAPITAL" is in other dictionaries:

share capital- Equity capital of a joint-stock company, formed by issuing shares, equal to the sum of the par value of shares. [JSC RAO "UES of Russia" STO 17330282.27.010.001 2008] share capital Share capital of the joint stock company ... Technical translator's guide

Share capital- (Stockholders 'equity, shareholders' equity, Capital stock, Share (stock) capital) - equity capital of a joint-stock company formed by issuing shares, total assets minus the company's current liabilities, ... ... Economics and Mathematics Dictionary

- (equity capital) Part of the company's share capital held by the holders of ordinary shares, although in some cases, such as pre emption rights, shares may also be included in the share capital, ... ... Business glossary

SHARE CAPITAL- the share capital of a joint-stock company, which is formed through the issue of shares. It is the authorized capital, since its size is determined by the charter of the company. A. to. also called nominal and authorized capital. A. to. it is property ... ... Legal encyclopedia

Share capital- (English capital of joint stock company) the share capital of a joint-stock company, formed through the issue of shares. Distinguish between: fixed capital, the size of which is fixed in the charter of the joint-stock company (authorized capital); subscription, i.e. ... ... Encyclopedia of Law

Share capital is the ownership equity (net worth) of a joint stock company. It is equal to its total assets minus total liabilities ... Wikipedia

The share capital of a joint-stock company, which is formed through the issue of shares. It is the authorized capital, since its size is determined by the charter of the company. A. to. is also called nominal and authorized capital ... Legal Dictionary

The share capital of a joint-stock company, the size of which is determined by its charter. Formed by issuing shares ... Big Encyclopedic Dictionary

The fixed capital of a joint-stock company, formed by the issue and sale of shares. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B .. Modern economic vocabulary... 2nd ed., Rev. M .: INFRA M. 479 p. 1999 ... Economic Dictionary

SHARE CAPITAL- (English joint stock (capital)) - the share capital of a joint-stock company, formed through the issue of shares. Distinguish: fixed capital, the size of which is recorded in the charter of the share. about va; subscription - mobilized by subscription; paid - deposited in ... ... Financial and credit encyclopedic dictionary

Books

The main book of the founder of the business, Wasserman N .. Team building is the most important stage when starting a new business. In most cases, it is “problems between people” that lead startups to crisis, and sometimes to collapse. Book of Noam ...
Present value of capital. A Practical Guide to Making Financial Decisions, Ogier Tim. Should a company use its own cost of capital when evaluating new capital expenditures and acquisitions? What cost of capital should the company be based on when assessing ...

2.2.1. Equity structure.

Securities intended for the formation or increase of the equity capital of companies, aimed at Receiving a profit, which they will then share with the holders of these securities, received the name capital securities... These include stocks, bonds, shares of cooperatives, investment certificates, mortgages and their varieties.

The capital securities market serves as the basis for the formation of the capital of a joint stock company.

The equity capital of a joint stock company includes:

- own share capital and reserve capital, which is created by deducting from profit (used as a reserve fund) to obtain equity capital and to pay dividends during periods of economic downturns.

Securities are the advanced portion of a company's equity capital. The advanced capital has the following structure:

- authorized capital (issued shares at par value);

- the amount received by the joint-stock company when selling shares at a cost exceeding the nominal value (share premium);

- shares issued and distributed among shareholders on account of dividends at par value;

- the value of shares for which the subscription was made, but which were not fully paid by the shareholders, is excluded from the amount of paid-up capital;

- excluded from the amount of paid-up capital is the cost of shares of its own issue, redeemed from shareholders at the cost agreed with the founders.

The basis for the classification of the advanced part of equity capital (charter, share, additionally invested, unpaid and withdrawn) is based on the principle of its reflection in the accounting accounts and in the balance sheet of the company.

In the UK, as in most developed Western countries, such organizational and legal forms of companies as joint stock companies and partnerships prevail. This indicates the predominance of the share of investment contributions in the equity capital. Therefore, equity capital is often viewed as borrowed by the company and subject to return in the future. Sources of funds are divided into two groups - equity (equity) capital and loan (attracted) capital. Both the first and the second are obligations, debts of the joint-stock company, because sooner or later the funds received will have to be returned. BUT advanced capital, which constitutes an insignificant share in the equity capital of such firms, is presented in the reporting in a rather curtailed form (mainly as equity and additional capital).

Similarly, the advanced capital is presented in the balance sheets of France and Greece (share capital and share premium), Austria and Sweden (share capital), Australia (declared share capital and crap on shares), Czech Republic (share capital and capital funds, including share premium) , Germany (authorized capital), Russia (authorized capital and additional capital).

In Estonia, the advanced capital is divided into:

Share capital or share capital at par;

Agio (overstatement / understatement of the par value);

Capital transferred under a gift agreement;

Own shares or own shares (reduce the amount of the advanced capital).

French companies can redeem and sell their own shares only under certain conditions: for transferring to employees, when reducing the share capital or for regulating the market situation, if the company is listed (in this case, it can enter into agreements with no more than 10% of shares) ... The repurchased treasury shares are shown on the balance sheet as an asset.

In Belgium, the advanced part of equity capital is represented by:

Equity capital;

Share premiums (the difference between the issue price and the non-distributable par value);

Investment grants.

Unpaid amounts of authorized capital are recognized in Belgium as receivables.

In Ukraine, depending on the stage of formation, the share capital can be: declared, signed, paid, redeemed. The structure of equity capital is shown in Fig. 2.15.

Equity is the abstract value of property owned by the owners of a joint stock company. The amount of equity shown in the balance sheet depends on the valuation of assets and liabilities. As a rule, the aggregate amount of equity capital only coincidentally corresponds to the aggregate market value of the company's shares or the amount that can be obtained by selling net assets in parts or of the joint-stock company as a whole on a continuity basis.

Rice. 2.15. Equity structure of JSC

At one time, the concept of "fictitious capital" was recognized in Marxist literature, which meant not real capital, represented in the form of factories and plants, stocks, machinery and equipment, gold and money, but its reflection in securities. The Marxist interpretation of the essence of shares reveals them as securities that do not create value or surplus value, however, it points out that the fictitious capital represented in shares is closely related to industrial capital, which, in turn, has the ability to grow and create value. Fictitious capital, expressed in shares, "arises and develops on the basis of industrial capital, influencing the process of changing its investment attractiveness."

The latter receive an independent movement in isolation from real capital, which they represent in the documentary form of securities. The current stage of circulation of financial and credit instruments in documentary and non-documentary (in the form of electronic files) forms is fundamentally different from their past state - fictitious capital. A couple of decades ago, the non-cash form of existence of securities meant entries in special books that were kept by special registrars. Currently, non-cash organization of workflow is most often carried out in the form electronic records which are virtual in nature. Virtual state completely removes restrictions (territorial and time) from the previous fictitious capital and gives it new elements that relate more to information and cosmopolitan categories than to simple paper documents.

Share capital is the main, basic, initial capital of a joint stock company, formed through the issue and sale of shares. It is made up of the funds of shareholders, combined for the purpose of making a profit. In fact, it is a mixed form of ownership. In general, this is the property of a joint stock company, which is one of the forms of private property, individual or collective subtype, called joint stock or corporate.

In the course of the formation of share capital, a distinction is made between:

1) unpaid- part of the shares that the shareholders have not yet paid for;

2) fully paidny- share capital formed as a result of full payment by shareholders for the shares they have purchased.

Equity capital is currently the most common, what due to a number of advantages of the share capital. The creation of a joint-stock company makes it possible to collect significant sums in a short period of time, which serve as the basis for a new production or develop existing organizations. Thus, Russian railways develop mainly due to the creation of joint stock companies. Promotions allow short time move funds from one industry to another and between companies, so the economy is growing at an accelerated pace. The emergence and development of joint-stock companies and relations between them also changed ownership relations. In essence, shares are one of the types of private property; they are collective property of investors (shareholders). Through transactions for the sale and purchase of shares, the owners of capital change, and this does not affect the existence and well-being of companies in any way. This clearly shows that fixed capital is not necessary for reproduction, it is only needed to create an organization. A joint-stock company allows you to transfer the means of production to the employees of the company themselves, which eliminates the need to pay dividends and preserves profits. The development of the joint-stock form of capital greatly facilitated the merger of various capitals, including those operating in different sectors of the economy.

Share capital used – these are contributions received from shareholders as payment for the shares placed by the joint-stock company, used by the company to carry out its statutory activities and make a profit.

Invested capital Is funds invested in the company's assets by shareholders in exchange for shares and forming part of the equity capital of a joint-stock company. When the profit is divided between the shareholders, it is the amount of the invested capital that is taken as a basis, the percentage of profit is calculated on the value of the shares purchased by the investor. The amount of the contribution is indicated in the memorandum of association, in the list of contributors. Thus , the main document securing the shareholder's ownership of a share in the authorized capital of a joint-stock company is a share - a security that has no maturity date.

The capital invested in a share cannot be reclaimed by its holder (except in the case of liquidation of a joint-stock company). However, it can be turned into money by selling this paper. The owner of a share has limited liability, that is, is not responsible for the obligations of the company as a whole. An investor cannot lose more than he has invested in a share.

The authorized capital at the time of the creation of a joint stock company is the aggregate of assets paid for shares issued by a joint stock company, which is equal to their total par value.

Volkova O. N... Accounting in Great Britain // Accounting. 1999. No. 9. P. 96-102; Richard J. Accounting: theory and practice / Per. with fr .; ed. Ya.V. Sokolova. M .: Finance and statistics, 2000.160 p .; Ostrovsky O. M., Kovalev V. V... Integration of Russia into the international accounting community // Accounting. 2002. No. 5. P. 73–78; Hammer Ya.V... Conservatism as the basic principle of accounting: the experience of Germany // Accounting. 1999. No. 8. P. 105–108.

Linnax E. Book about accounting / Per. with estonian. A. Svirina; ed .: V. Weingort, L. Pavlova. Tallinn: First Hand Publishing House, 1996. 212 p.

Sokolov Ya.V., Semenova M.V. Accounting in France // Accounting. 2000. No. 5. P. 69–77.

The authorized capital of a joint stock company (hereinafter - JSC) must be paid after its registration. The article discloses general information about the authorized capital (hereinafter referred to as the MC) of a JSC, and also highlights the issues of how to reduce or increase it.

Authorized capital of JSC

Information on what constitutes the authorized capital of a joint-stock company, as well as on the procedure for increasing and decreasing it, is set out in Art. 25-29 of the Law "On Joint Stock Companies" dated 26.12.1995 No. 208-FZ, as well as in Art. 99-101 of the Civil Code of the Russian Federation.

The Criminal Code is formed during the creation of a joint-stock company. It is formed by shares, and the amount of capital is determined by their par value and quantity. The par value is a specified amount that reflects how much a share is worth in monetary terms. It may differ from the market value expressed in terms of sum of money, which are ready to give for 1 share in the market at the current time.

The capital is paid as follows (clause 1 of article 34 of the Federal Law No. 208). Half of the shares must be paid within the first 3 months after the registration of the JSC. The remaining half is paid within one year after the registration of the company, unless otherwise specified in the memorandum of association. If the shares are not paid for, the participant of the joint-stock company, who allowed this, cannot participate in the decision-making on the company's activities, that is, vote.

A JSC can have common and preferred shares. The former are always equal in value to each other and grant the same rights to the owners. The cost of preferred shares may vary, but the same types of such shares cost the same. At the same time, the nominal price of all preferred shares cannot be higher than 25% of the size of the authorized capital of the JSC. The cost of one such share cannot be less than the cost of 1 ordinary share.

The minimum size of the charter capital of a public company (whose shares are in free circulation) is exactly 10 times higher than the size of the capital of an LLC and amounts to 100,000 rubles. The capital of a non-public joint-stock company (whose shares cannot be freely purchased) is equal to 10,000 rubles (Article 26 of the Federal Law No. 208). By virtue of paragraph 3 of Art. 11 Federal Law No. 208, all the necessary information about the authorized capital of a JSC must be prescribed in the charter.

Minimum authorized capital for some types of JSC

For some types of AO minimum size capital is established by special laws (clause 1 of article 66.2 of the Civil Code of the Russian Federation).

In particular, the increased size of the minimum authorized capital is set:

for banks and other credit institutions due to the requirements of Art. 11 of the Law "On Banks ..." dated 02.12.1990 No. 395-1 (from 90 million rubles to 1 billion rubles, depending on the type of credit institution);
insurance organizations by virtue of the requirements of paragraph 3 of Art. 25 of the law "On the organization of insurance ..." dated November 27, 1992 No. 34015-1 (from 120 million rubles to 480 million rubles, depending on the coefficients established in the law for various insurance objects);
vodka producers by virtue of the requirements of clause 2.2 of Art. 11 of the Law "On government regulation... "dated 22.11.1995 No. 171-FZ (80 million rubles).

Increase of the authorized capital of JSC

All shares of the JSC are uncertified. This means that information about the owners of shares is reflected in the registers or in the entries on the securities account. The shares do not have to be whole. By virtue of paragraph 3 of Art. 25 ФЗ № 208 they can be split.

Fractional shares also participate in the turnover of a public JSC or within a non-public JSC. If a shareholder has, for example, 2 fractional shares, the size of each of which is ½ of the whole, then it is considered that he owns the whole share.

The capital of a joint-stock company can be increased in 2 ways:

By increasing the value of existing shares. This decision is made at the general meeting of shareholders. It is possible to increase the value of existing shares when the joint-stock company has property that can cover the increase in value.
By issuing new shares. This decision is made either by the general meeting or by the board of directors, if such powers have been transferred to it in accordance with the charter of the joint-stock company. As a rule, the issue is carried out when it is necessary to attract new shareholders. It is possible to increase capital both at the expense of the property of the joint-stock company and in other ways, for example, by attracting funds from new shareholders.

To increase the authorized capital of a joint stock company, all members of the general meeting must vote unanimously. New shares that appear at the expense of JSC property are distributed among shareholders in proportion to their number. It should be noted that the number of shares cannot exceed that specified in the charter of the joint-stock company.

Reduction of the authorized capital of a joint stock company

The capital of a joint-stock company can not only be increased, but also decreased. At the same time, there are cases when it is necessary to do this without fail, for example, when another company joins one JSC (clause 4.1 of article 17 of the Federal Law No. 208) or the shares of the joint stock company were not paid for and were transferred to the company, which must sell them (clause 1 Article 34 of the Federal Law No. 208).

IMPORTANT! The capital cannot decrease if, as a result of its decrease, the size of the authorized capital is less than 100,000 rubles for public JSCs or less than 10,000 rubles for non-public ones.

Reduction is done in 2 ways:

By reducing the value of each share of the same type (for example, all ordinary shares). Decision can be made general meeting, and the proposal is put forward by the board of directors.
By reducing the total number of shares. The decision must be taken at the general meeting.

IMPORTANT! A decrease in the authorized capital of a joint-stock company is possible only when it is spelled out in the charter. Otherwise, you will need to make changes to it.

It is impossible to reduce capital through a decrease in the value of shares if (clause 4 of article 29 of the Federal Law No. 208):

they are not paid;
they were not redeemed by the joint-stock company in accordance with Art. 75 FZ No. 208;
AO meets the signs of bankruptcy;
a decrease in capital will lead to bankruptcy;
the value of assets is less than the aggregate size of both the authorized capital and the reserve fund, as well as the value of preferred shares;
the value of assets after the price of shares is reduced will become less than the total size of the authorized capital, the reserve fund, as well as the value of preferred shares;
dividends were declared but not paid;
The JSC is specialized (Article 15.2 of the Federal Law "On the Market ..." dated April 22, 1996 No. 39).

Outcomes

So, in most cases, the size of the authorized capital of a public JSC at the beginning of its activity is equal to 100,000 rubles, and of a non-public JSC - 10,000 rubles. It must be paid in full within a year after the registration of the JSC.

Authorized capital (MC)- this is a certain amount of funds, which are the main source of the functioning of society, and it is worth understanding how the formation of the authorized capital takes place.

The authorized capital can be assessed from two sides - legal and economic. From the legal side, the Criminal Code is the monetary property of the enterprise, which is paying off the creditors. From the economic point of view, the management company is the minimum amount of money that is required to start a business. The amount of the authorized capital is established in accordance with the charter of the company.

The legislation specifies the minimum amount for the formation of the authorized capital... The size of the authorized capital is determined by the organizational and legal form legal entity- LLC, CJSC, LLP. For example, the charter capital for an LLC must be at least 10,000 rubles.

How the authorized capital is formed

The formation of the authorized capital takes place with the help of the founders of the legal entity. Information about this must be entered in a special document of the legal entity. Investments in the authorized capital of a legal entity can be made in foreign currency or in rubles. If funds in foreign currency have been contributed to the authorized capital, then the documents must reflect the value in rubles at the MICEX exchange rate.

Also, the authorized capital of a legal entity can be formed, in addition to monetary investments, and tangible assets (furniture, office equipment), intangible assets (patents). If contributions are not made in cash, then they must be measured in cash.

If the value of the contributions is more than 20,000 rubles, then in order to convert them into cash equivalents, the assessment must be carried out by an auditor!

If it happens with the help of funds, then they must be deposited into a savings account in the bank until the moment when state registration legal entity. Before submitting documents for registration, you must:

Choose a bank for servicing the company's current account;
- determine the size of the authorized capital;
- to determine how many people form the Criminal Code;
- open a savings account in this bank and deposit money there.

After the registration of the legal entity is completed, the money from the savings account is transferred to the current account of the company, and they become the authorized capital of the legal entity.

Contribution of the authorized capital- a rather lengthy process, but documentary confirmation is not needed for it, which means that a current account can be opened immediately after registration of a legal entity and entered into the charter capital in accordance with the charter.

If the Criminal Code of the company is formed by property, then an act of acceptance and transfer of this property as a contribution to the Criminal Code is required. But at the same time, the contribution to the Criminal Code is feasible only after the registration of the company!

The company's charter must necessarily contain a specific amount of the authorized capital and how it is contributed (for example, in parts for a certain amount).

Of the Criminal Code- the minimum amount of resources required to start a business. If it is paid in money, it can be used to pay for the rent of the premises, wages employees, for purchases for the company.

The company's Criminal Code is not subject to taxes. Expenses for the management company are not expenses of the society, tk. they are the expenses of the founders. In addition, the Criminal Code is not a profit of society and is also not taxed.

Since the authorized capital is formed by the founders of the company, they are required to contribute their personal funds or material values during its formation. If the founder is one person, then he himself contributes his funds to the Criminal Code. If there are several founders, then their share in the charter capital is determined as a percentage of the size of the charter capital.

Since the main goal of the created legal entity is profit, its founders bear initial costs with the expectation of receiving dividends in the future, i.e. the amount of the contributed share affects the amount of the future profit of the participant.

In addition, the larger the contributed share, the more votes in decision-making at the meetings of the founders of the community.

Share in the authorized capital can also be changed, this is prescribed in the charter of the company.

The size authorized capital a legal entity can be changed, but it cannot be less than that established by law. To increase the size of the authorized capital, you need a package of documents. The size of the authorized capital can increase at the expense of property and due to additional contributions from the founders and third parties. Each of these methods has its own limitations.

For example, in an LLC, the size of the charter capital can be increased only if the company's profit has increased or additional funds have been contributed from the founders.

The authorized capital of the LLC is formed with the help of the Federal Law "On Companies with limited liability". The minimum capital for an LLC is 10,000 rubles. At the time of registration of a legal entity, the management company must be paid in the amount of 50% of its size. The remaining 50% must be paid within a year after the registration of the LLC.

If the funds of the Criminal Code are deposited in the company's cash desk, then a cash receipt is issued, and if to the current account, then an announcement is made.

Authorized capital of a joint stock company formed according to Federal law"On Joint Stock Companies". The composition of the management company of JSC - a certain amount of shares. The number of shares depends on the par value of the shares and the size of the authorized capital. The management company of JSC includes shares different kind with a set value, and as a result, personal funds are invested as a legal entity and cash shareholders.

A joint-stock company must create a charter capital after registering the company through the sale of shares to certain persons. Dividends are distributed based on the value of the shares.

This is how it happens formation of authorized capital, without which it is impossible to open and operate your own business.

In the balance sheet of the corporation, the share of owners is called own capital shareholders as shown below.

Note that the equity section of the corporate balance sheet has two parts: (1) share capital and (2) retained earnings... Share capital represents the initial investment by shareholders in a corporation. Retained earnings - the profit received by the corporation since the beginning of the commercial activities less losses, dividends, or equity transfers.

In many countries, the amount of retained earnings is the basis for calculating the maximum possible distribution of past earnings to shareholders. Retained earnings are not distributable funds. Retained earnings represent earnings reinvested in a corporation.

In accordance with the principles of completeness of information reflection, the section "Share capital" of shareholders' equity of the corporate balance sheet contains significant information about the share capital of the corporation: types of shares, their par value, the number of shares authorized for issue, the number of shares issued and outstanding. The information contained in the Share Capital section of shareholders' equity is the subject of the rest of this chapter. A detailed discussion of retained earnings is given in the chapter on earnings and retained earnings.

Share capital

The unit of ownership in a corporation is a share. The shareholder receives a share certificate showing the number of shares of the corporation held by that shareholder. He can transfer his property at his own discretion. To transfer to another person, the owner of the share must sign the share certificate and give it to the secretary of the corporation.

In large corporations listed on specially established stock exchanges, it is difficult to keep track of shareholders. These corporations issue millions of shares, and within a single day, several thousand shares can change owners. Therefore, such corporations often appoint independent registrars and transfer agents, usually in the role of banks or trust companies with secretarial functions. They are responsible for handling the transfer of shares in the corporation, maintaining a register of shareholders, compiling a list of shareholders for shareholder meetings, and paying dividends.

When issuing shares, corporations often involve underwriters who act as intermediaries between corporations and potential investors. For a fee, usually less than one percent of the sale amount, the underwriter ensures the sale of the shares. In the accounts of share capital and share premium, the corporation records the amount of net proceeds from the issue of shares, i.e. the amount paid for the shares by the buyers, less the underwriter's fees, legal fees and printing of certificates, and other costs directly attributable to the issue of shares.

Capital Allowed for Issue

In most countries, when a corporation applies for registration, the draft articles of association must state the maximum number of shares that the corporation is allowed to issue. This quantity represents the capital allowed to be issued. Most corporations are authorized to issue more shares than required at the time of their creation. This allows the corporation to issue more shares in the future to raise additional capital.

For example, if a corporation plans to expand in the future, then the unissued shares authorized in the charter to issue would be a possible source of capital. If all authorized capital was issued immediately, then the corporation will have to apply to the state for permission to amend the charter related to an increase in the number of shares authorized for issue.

The charter also indicates the par or par value of those shares that were authorized for issue. The par, or par value, is an arbitrary amount, often prescribed by law, that must be imprinted on each share. This value is recorded in the “Share Capital” accounts and represents the share capital of the corporation.

The authorized capital is equal to the number of issued shares multiplied by their par value; he is minimum amount which can be shown as share capital. The par, or par value, is usually not comparable to the market or book value of the shares. When a corporation is created, a posting can be made in the main journal showing the quantity and description of the authorized shares.

Issued and outstanding capital

Issued capital represents shares sold or otherwise transferred to shareholders. For example, a corporation is allowed to issue 500,000 shares, but the corporation may decide to issue only 300,000 shares at the time the corporation is organized. The holders of these 300,000 shares own 100% of the corporation's property. The remaining 200,000 shares are unissued. They do not give any rights or privileges until they are released.

Capital in circulation are shares issued and in circulation. A share is not considered to be outstanding if it has been redeemed by the issuing corporation or returned to that corporation by a shareholder. In such cases, the number of shares issued will be greater than the number of shares outstanding. Those issued shares that have been repurchased and held by the corporation are called treasury shares, which we will discuss in more detail later in this chapter.

Ordinary shares

The corporation can issue two main types of shares - ordinary and preferred. If only one type of shares is issued, then they are called ordinary. Ordinary shares are the residual equity of the corporation.

This means that in case of liquidation of the company, the turn to satisfy the claims of holders of ordinary shares comes only after the queue of all creditors and holders of preferred shares. Since ordinary shares are usually the only shares that give their holders the right to vote, they are a way of controlling the activities of the corporation.