Ordinary Shares Capital

Ordinary Shares Capital is defined as the amount of money which is raised by the companies from the issue of the common shares of the company from the public and the private sources and it is shown under owner’s equity in the liability side of the balance sheet of the company.

Ordinary Share Capital Definition

Ordinary share capital is the sum of money raised by a corporate from private and public sources through the issue of its common shares. It is the capital that is received by the owners of the company in exchange for shares. The ordinary share capital has equity ownership in the company in proportion to their holdings. Ordinary Shares Capital is one of the primary ways to finance various projects and purposes. It is usually considered better than debt methods like loans etc.

Ordinary Shares Capital Formula

The formula for ordinary shares capital as per below:

Ordinary Share Capital = Issue Price of Share * Number of Outstanding Shares
Ordinary-Shares-Capital

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For eg:
Source: Ordinary Shares Capital (wallstreetmojo.com)

where,

Examples of Ordinary Shares Capital

Let’s see some examples of ordinary shares capital to understand it better.

Example #1

Suppose ABC is a US-based company. If the company sells 1000 shares, having a face value of $ 1 per share.

Solution:

Calculation of ordinary shares capital can be done as follows –

Example 1

Issued share capital= $(1000*1)

Issued Share Capital = $1000 of ABC

Example #2

Suppose XYZ is a US-based company with an authorized capital of 1 million shares at a par value of $1 each, for a total of $1 million. However, the issued capital of the company is only 100,000 shares, leaving 900,000 in the company’s treasury available for future issuance.

Solution:

Calculation of ordinary shares capital can be done as follows –

Example 2

Issued share capital= $(100,000*1)

Issued Share Capital = $100,000 of XYZ

Example #3

Let’s assume PQR is a UK based company. Its shareholder owns 50 shares at £1 each. Then these shareholders have to pay the company £50.

Solution:

Calculation of ordinary shares capital can be done as follows –

Example 3

Issued share capital = (50*1)

Issued Share Capital = 50 of PQR.

Advantages of Ordinary Shares Capital

Disadvantages of Ordinary Shares Capital

Limitations of Ordinary Shares Capital

Important Points

Conclusion

We can conclude that there are many possible ways to raise capital. Out of this, the company can raise capital by issue of shares to the public. It can be more suitable and appropriate as compared to other methods. But, sometimes, it raises further issues for the company. So, proper care must be taken as Ordinary Share capital is the capital generated from ordinary shares issued to the public at large, and the company’s reputation is at stake.

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