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Share capital is the total amount of money a company has raised by issuing shares to shareholders. It represents the ownership stake that investors collectively hold in the business and appears on the balance sheet under equity. When you buy shares in a company, you are directly contributing to its share capital.
Think of share capital like the founding investment pooled by co-owners before a business opens its doors.
These three terms describe different layers of share capital, and confusing them leads to mistakes in financial analysis. Authorized capital is the maximum amount of share capital a company's legal documents permit it to raise. Issued capital is the portion of that maximum that has actually been issued to investors. Paid-up capital is the amount investors have already paid for those issued shares.
A company can have $10 million in authorized capital, issue shares worth $6 million, and collect only $5 million if some shareholders have not paid in full. The $5 million is the paid-up capital and is the figure most relevant to creditors and financial analysts.
Companies issue two primary classes of shares, each with different rights attached to it.
On the balance sheet, share capital is reported under shareholders' equity alongside retained earnings, additional paid-in capital, and accumulated other comprehensive income. The share capital line typically reflects the par value of issued shares, which is often a nominal amount like $0.01 per share. The amount investors actually paid above par value appears as additional paid-in capital, also called share premium.
For example, a company that issues 1 million shares with a par value of $0.01 for $10 each would show $10,000 in share capital and $9.99 million in additional paid-in capital. Both figures together represent what shareholders paid to purchase their ownership stake.
Every time a company issues new shares, it dilutes the ownership percentage of existing shareholders. If you own 10% of a company with 1 million shares outstanding and the company issues 500,000 new shares, your ownership falls to approximately 6.7% without you selling a single share.
Dilution matters because it can reduce your earnings per share and your voting influence even if the company's total earnings grow. Secondary offerings, employee stock option plans, and convertible debt instruments all increase the share count over time. Tracking the fully diluted share count, which includes all potential new shares from options and convertible instruments, gives you a more accurate picture of your actual ownership stake.
Companies reduce their share capital through share repurchases, also called buybacks, and through formal capital reductions. A buyback purchases shares on the open market and either holds them as treasury stock or cancels them. Canceling shares reduces the total outstanding count and increases the proportional ownership of remaining shareholders.
Apple spent over $95 billion on share repurchases in fiscal year 2024, which is more than most companies raise in their entire lifetimes. This consistent buyback program has reduced Apple's share count significantly over the past decade, mechanically increasing earnings per share even in years when net income growth has been modest.
Sources:
https://www.sec.gov/cgi-bin/browse-edgar
https://www.fasb.org/
https://www.ifrs.org/
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