Share Capital

Introduction:-
Share capital is the funds raised by issuing shares in return for the benefits. It is also known as Equity Financing. The amount of share capital of a company has can change over time because when each time a business sells new shares to the public in exchange for cash, that time the amount of share capital will increase.


Explanation:

The amount of share capital a company reports on its balance sheet. It is only accounts for the initial amount for which the original shareholders purchased the shares from the issuing company. Any price differences arising from price raising or falling as a result of transactions in the secondary market are not included.

For example, suppose Adsys India ltd raised 2 crores from its initial public offering. Over the next year, the total value of its shares increases to 5 crores. In this case, the value of the share capital is still only 2 crores because adsys India ltd had received only 2 crores from the sale of its securities to the investing public.
Share Capital may consist of:-
a) Common Share:
It gives an ownership right to the holders of the stock and hence the share holders are entitled to the earnings of the company according to their stocks. Holders also get payments on those stocks as and when given by the company. Liquidity of common stocks are very high and can be bought and sold at any time of the market hours.

b) Preferred Share:
These stocks also give ownership right to its holders. Its holders enjoy the privilege of receiving dividends from the company in preference to any other common share holders.
Preferred stocks have less liquidity than the common stocks.

The disadvantage of financing through share capital route is that the owner(s) has to give-up certain amount of control from the business because buyers of the Share Capital become part owners of the company in accordance to their stake in the same and hence possess certain degree of control over its operation.

Conclusion:

Share Capital issuances are most likely to benefit the small businesses who suffer from lack of initial cash flow. Through this, small businesses get easy access to fund. It is also advantageous to a small business owner because he has no written promise for repayment of money to the investor.