Capital Stock Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Capital Stock, written in plain English, along with examples of how it is used.

What is Capital Stock?

(n) Capital Stock is the money paid by the share holders of a company as share capital when such shares was first issued to the shareholders by direct subscription to a share issue offer. This may not represent the market value of the shares or the accumulated reserves or undistributed profit etc belonging to the share holders

History and Definition of Capital Stock

Capital stock is a term used in business and finance and refers to the total amount of shares that a company may issue to its shareholders. When a company wants to raise capital, it may offer shares to potential investors, and when these shares are purchased by investors, this is what's referred to as shares of capital stock.

The amount of capital stock issued by a company may vary depending on factors like the size and nature of the business and can be communicated in shares of common stock or preferred stock. Preferred stockholders receive their dividends before common stockholders in case of liquidation but have limited voting rights.

Additional shares of capital stock can also be issued by a company through various means like stock splits, rights issues, or bonus issues to raise more capital, which can dilute the value of existing shares.

Examples of Capital Stock

  1. A company had an authorized capital of $10 million and issued 1 million common shares of capital stock at $5 per share, resulting in a Capital Stock of $5 million.
  2. The CEO of a company decides to issue an additional 500,000 shares of capital stock to raise funds for expansion.
  3. The value of a company's capital stock fluctuates depending on factors like investor demand, market conditions, and company performance.

Related Terms

  1. Authorized Capital - The total amount of capital that a company is permitted to issue as per its Articles of Association.
  2. Issued Shares - The total number of shares of capital stock that have been sold to investors by a company.
  3. Treasury Stock - Shares of a company's capital stock that it has repurchased from the open market or shareholders and is holding in its treasury.