Share Capital

The cash invested by shareholder's and investors

Share Capital

Share capital (shareholder’s capital, equity capital, contributed capital or paid-in capital) is the amount invested by a company’s shareholders for use in the business. When a company is created, if it’s only asset is cash invested by the shareholder’s, the balance sheet is balanced on the right side through share capital, an equity account.

Share capital is a major line item, but is sometimes broken out by some firms into the different forms of equity issued. This can represent common stock and preferred stock, the latter including the par value of the stock.

Share capital is separate from other equity generated by the business. As the the name “paid-in capital” dictates, this equity account refers only to the amount paid-in by investors and shareholders, as opposed to the amounts generated by the business itself which flows into the retained earnings account.

Share Capital and the Balance Sheet

Through the fundamental equation where assets equals liabilities plus equity, we can see that assets must be funded through one of the two. One method for a company funding its assets is to create liabilities and therefore create obligations that must be paid back. The other is to issue equity through common shares or preferred shares. In exchange for a claim to the company, the company receives cash from investors and shareholders.

Learn more about the Balance Sheet