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What is a Capital Share?

By Marsha A. Tisdale
Updated May 17, 2024
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Capital share refers to funds that a company raises by issuing shares in return for cash or other compensation. The value of capital share will change over time becaise whenever new shares are offered to the public and are sold, more money comes into the company as capital. Shares represent ownership in the company.

There are generally two types of stocks that companies sell, common stock and preferred stock. Stockholders who have common stock have voting rights to elect the board of directors. Preferred stockholders do not have voting rights, but they have first claim on profit through dividends. Dividends owed on preferred stock must be paid before any are paid on common stock.

In the US, capital stock shares are those which have been held for 12 months or longer. When a stockholder chooses to sell capital shares, he or she receives capital gains treatment on the profit. The percentage of tax levied on this type of income is less than on ordinary income.

Capital growth, also called expansion capital, is a type of investment designated for company expansion or restructuring projects. Companies seeking this type of capital will do so in order to finance specific projects to increase the company’s size or number of projects. This may be a company strategy to avoid additional debt funding.

A dual-purpose fund differentiates types of distributions by share type. Shareholders with common stock receive distributions from capital gains, and preferred shareholders receive the dividend and interest income. Therefore a common stock share is also called a capital share, and preferred stock shares are income shares. If there is a liquidation, preferred stockholders have first claim on payouts, but only up to the par value of their shares. Common stockholders would have claim to all the remaining capital from the fund.

Shares in a mutual fund are also designated as capital share. The fund raises in value as the capital value of the individual stocks increase. However, the shares would not receive income in the way of dividends. The owner of the mutual funds would then receive profit if he or she sells stock from the mutual fund.

Share capital is the investment in a company by the stockholders or owners of the company. When an individual purchases a share, he or she becomes an owner of the company. The individual’s right to have a say in the running of the business depends on the type and amount of stock purchased. Issued capital share is the total number and value of shares issued by a company.

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