Definition
Share capital is the portion of equity on the balance sheet representing money shareholders have contributed to the company in exchange for shares. It comprises the nominal (par) value of issued shares in jurisdictions that retain par value (UK), or the full issue price of issued shares in jurisdictions that have abolished par value (AU, CA modern, NZ, SG since 2006). Where par value exists, any amount paid above par sits in a separate share premium (UK) or contributed surplus (CA) account.
What share capital means in practice
For a bookkeeper, share capital is the most stable line on the balance sheet. Once the company is incorporated and the founders’ shares are issued, the share capital balance typically stays unchanged for years. It moves only on specific events: new share issues to outside investors, share buybacks, court-approved capital reductions, or capitalisation issues where retained earnings are converted to share capital.
The size of the share capital balance tells a reader something specific about the funding history of the business. A small share capital balance (typically 1 to 1,000) is the signature of a self-funded or bootstrapped business that has grown from operations and not raised outside equity. A large share capital balance signals one or more equity rounds with outside investors. The distinction matters because share capital is generally not distributable as dividend; retained earnings is.
A practical example: a UK consultancy at 31 March 2027. Total equity 103,250. Share capital 1,000 (1,000 ordinary shares of 1 nominal value, issued at par to the founders at incorporation). Retained earnings 102,250 (six years of accumulated profit after dividends). The 1,000 share capital balance has not moved since incorporation; the 102,250 retained earnings line has accumulated entirely from operations. This is the typical pattern for a self-funded service business.
How share capital works by country
United Kingdom
The Companies Act 2006 distinguishes nominal value (the par value of each share) from the issue price (what shareholders pay). The difference between issue price and nominal value is share premium, sitting in a separate share premium reserve. The share premium reserve is non-distributable: it cannot be paid as dividend (in contrast to retained earnings). UK private companies must have at least one share at the time of incorporation; nominal values can be as low as 0.01. The Companies Act 2006 abolished authorised share capital for companies incorporated after 1 October 2009.
Australia
Australia abolished the concept of par value in 1998 under the Company Law Review Act (the CLERP reform). All AU shares are “no par value” shares; the entire issue price posts to a single share capital account. This is simpler than the UK regime but means there is no AU equivalent of the UK share premium reserve. The Corporations Act 2001 governs share issuance and reductions.
Canada
The Canadian Business Corporations Act and provincial equivalents allow both par value and no-par-value shares; most modern Canadian companies issue no-par-value shares. Where par value exists, the amount above par is called “contributed surplus” rather than share premium. Share buybacks and capital reductions follow specific procedures under the relevant federal or provincial corporations statute.
New Zealand
The NZ Companies Act 1993 abolished par value (the same model as Australia). All NZ shares are no-par-value shares; the entire issue price posts to a single share capital account. There is no NZ equivalent of the UK share premium reserve.
Singapore
The Singapore Companies Act abolished par value on 30 January 2006. All SG shares issued since then are no-par-value shares; the entire issue price posts to share capital. Older companies that had par value before the abolition transitioned automatically to no-par-value on that date; the former share premium reserves were treated as part of share capital from that point forward.
Related terms
Share capital is one component of equity:
- Equity is the overarching balance-sheet section.
- Retained earnings is the other main equity component.
- Retained profit is the UK synonym for retained earnings.
- A dividend is typically paid from retained earnings, not share capital.
- The balance sheet is where share capital appears.
- The statement of changes in equity shows any movement in share capital.
See also
For the equity section that contains share capital, see the equity entry.
FAQ
See the answered questions above for issued vs authorised capital, capital reductions, and the static nature of share capital.