Share Capital

• What is share capital?

  Funds raised by a company through the sale of shares to shareholders.
• Private limited companies sell shares to selected private individuals and public limited companies  sell to much larger numbers of the public on the stock exchange
• Large sums of finance can be raised by selling large quantities of shares but the shares must be in high demand to achieve high share prices
• Shares must be in what to sell large quantities of shares and to achieve high share prices?

  High demand
• A share entitles the holder to a share of the profit in the form of dividends. However dividends do not have to be paid but often are to encourage people to purchase shares when more are released in the future to raise further funds.
• Why do most businesses pay dividends even if they don't have to?

  Investor expectations and to encourage new people to purchase shares when more are released in the future to raise further finance
• If a company makes a loss then no dividend is paid to shareholders.
• The amount of profit paid as dividends is decided by the board of directors and is paid as a reward to shareholders, which takes profit away from the business.
• Who decides the amount of profit paid as dividends to shareholders?

  Board of Directors
• Does share capital have to be repaid?

  No
• Share capital is permanent capital meaning it does not have to be repaid.
• If the company performs poorly then there is less risk as no dividends will be paid, unlike a loan where interest and repayments would still need to be made
• Does share capital make owners lose control of the business?

  Yes
• Selling shares will mean the original owners may lose control of the business.