Definition
Ordinary Shares Capital refers to the portion of a company’s equity that has been derived from the issuance of common shares. These shares represent ownership in a company and entitle the holder to vote at shareholders’ meetings and to receive any dividends paid out to shareholders. The value of ordinary shares capital is calculated by multiplying the number of issued shares by the par value of each share.
Key Takeaways
- Ordinary Shares Capital refers to the funds that a company raises through the issuance of ordinary shares, which are the most common form of equities owned by investors. By buying these shares, investors are essentially buying ownership in the company.
- Unlike preferred shares, ordinary shares carry voting rights, allowing shareholders a say in the company’s decisions. However, they are last in line to receive any remaining assets if the company goes bankrupt.
- The value of Ordinary Shares Capital can fluctuate based on a company’s profitability and market perception, as it directly affects the price of ordinary shares in the stock market.
Importance
Ordinary Shares Capital is a significant financial term as it refers to the primary source of a company’s capital raised by issuing common or ordinary shares to investors. This capital represents the risk-taking component of the company’s capital, which is a foundation of its financial structure.
Typically, it is a function of the number of shares issued multiplied by the par value of each share. Understanding this aspect of a company’s capital structure provides insight into the financial health, stability, and long-term viability of the company.
From the investors’ perspective, ordinary shares often come with voting rights, enabling them to participate in company decisions, making this form of capital an attractive avenue for potential shareholders. Therefore, Ordinary Shares Capital plays a crucial role in both the financing of a business entity and its overall ownership structure.
Explanation
Ordinary Shares Capital refers to the amount of funding a corporation receives from investors in exchange for equity or common shares. These shares represent the business’ primary source of funding, which is primarily used to finance operations and growth initiatives, including product development, marketing, acquisitions, staff hiring, and other business needs.
This source of capital is highly critical to the company’s lifeblood, providing financial stability and foundation, allowing the company to undertake activities that help increase value for the shareholders. Importantly, Ordinary Shares Capital is also indicative of ownership in the corporation.
For investors, purchasing common shares means acquiring a portion of the ownership rights of that business. This ownership entitles them to a share of the company’s profits distributed as dividends, as well as the right to participate in the corporation’s crucial decision-making process through voting rights.
In this sense, Ordinary Shares Capital therefore reflects both a financial contribution and a claim to business governance, symbolizing a significant aspect of the relationship between a business and its shareholders.
Examples of Ordinary Shares Capital
Apple, Inc.: One of the most prominent examples of ordinary shares capital is Apple, Inc. In its financial statements, it is noticeable that Apple has billions of common or “ordinary” shares issued. These shares represent ownership in the company. When you purchase ordinary shares of Apple, you receive a fraction of the company’s assets and earnings.
Microsoft Corporation: Another key example is Microsoft. The company’s balance sheet reveals ordinary shares capital as a major component of its equity. These ordinary shares are available for purchase by the public. Owners of these shares will receive dividends as declared by the company, have the right to vote at shareholders’ meetings and share in the distribution of the company’s residual assets in case of liquidation.
British Petroleum (BP): BP Plc is a British multinational oil and gas company that has ordinary shares listed on the London Stock Exchange. Purchasing these ordinary shares gives the shareholders the right to receive dividends, the right to vote at general meetings of the company, and the right to participate in any residual value should the company be wound up. This is a clear example of ordinary shares capital.
FAQs for Ordinary Shares Capital
What is Ordinary Shares Capital?
Ordinary Shares Capital refers to the capital received by a corporation from the initial sale of its common shares to investors. Each share represents ownership interest in the company.
What are the rights of an ordinary shareholder?
Ordinary shareholders often have the right to vote at shareholder meetings, receive dividends when declared, and claim a portion of the company’s residual assets if it’s ever liquidated.
What is the difference between ordinary shares and preferred shares?
Preferred shareholders have a higher claim to dividends or asset distribution than ordinary shareholders. However, ordinary shareholders generally have the ability to vote at shareholders meetings, which is a right not always offered to preferred shareholders.
How is the value of ordinary shares capital determined?
The value of ordinary shares capital is typically determined by the market. It’s calculated as the share price multiplied by the number of outstanding shares. The company’s financial health, economic conditions, and investor perceptions can influence the share price.
Are ordinary shares risky?
All investments come with a degree of risk. Ordinary shares can be volatile and their value can decrease. However, they also offer potentially high returns comparative to other types of investments. It’s essential to make well-informed decisions and possibly seek advice from financial professionals.
Related Entrepreneurship Terms
- Dividends
- Voting Rights
- Equity Ownership
- Stock Valuation
- Capital Gains
Sources for More Information
- Investopedia – Their comprehensive financial definitions and articles can provide in-depth understanding about Ordinary Shares Capital.
- Corporate Finance Institute (CFI) – It is a well-respected resource for financial analysis and capital market news, including topics like Ordinary Shares Capital.
- Morningstar – A powerful tool for investor news, finance dictionary items and portfolio building, this can definitely answer questions about Ordinary Shares Capital.
- Moneycontrol – This is one of the leading financial information source which provides information about all types of shares including Ordinary Shares Capital.
