Share Capital

Share Capital

Share capital and how it is raised

Continuing the consideration of the composition of a balance sheet, we now come to the first kern on the liabilities side, namely SHARE CAPITAL. The beginning, as was shown in the previous webpage , appears in the following form:

Liabilities

Authorized

Issued

Fully

Partly

SHARE CAPITAL paid

Preference

Ordinary

Any business concern requires capital to finance its undertakings; it may need, for example, laud, buildings, machinery, tools, furniture and stock, in order to be able to produce goods or provide services.

A private company will raise its initial capital either from the private resources of the owners, or from loans (e.g., bank) or both. Further subscriptions of capital can only come from a very limited sphere, usually the original subscribers and their near relations, owing to the restrictions imposed on private companies.

A public company, however, may raise capital by issuing shares to the public (or to existing shareholders), or by borrow-Mg. Thus there are two main methods employed by a public company in raising ca,ita1, not only when the company is first created or 'goes public, but when an existing company needs to increase its capital. These two methods of raising capital are:

(1) Share (or stock) issues to the public in two forms: (a) Preference shares or stock units.

(6) Ordinary shares or stock units.

These issues, Preference and Ordinary, constitute the company's subscribed capital, and are termed SHARE CAPITAL.



(2) Borrowing by:

(a) Debenture issues. (1,) Loan stock issues. (c) Bank loan.

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