As for many other financial concepts, the term capital can cover a range of meanings, depending on whether we consider it in the broader or restrictive sense, with economic, accounting, philosophical or other perspectives. Here, capital as a source of company financing corresponds to the concept of share capital.
Share capital is made up of cash contributions (liquid assets), contributions in-kind (property) and industrial contributions (labour and services) invested in a company by one or more investors, in return for shares in the company.
A share represents a title of ownership and gives its holder, the shareholder, a number of rights related to the company:
- Political rights such as voting rights and rights to information
- Financial rights such as the right to a monetary share of the profits (dividend or interest) or in case of liquidation of the company
- Property rights such as the right to guarantee, loan or transfer the shares held.
Share capital appears as a liability on the balance sheet, and forms part of the equity (with which it is often assimilated, depending on the meaning given to the concept of capital). It represents the company's debts to the shareholders due to their contributions.
The contributions are shown as assets on the balance sheet (in return for the capital), in the form of liquid assets (in case of a cash contribution) and other types of assets (in case of a contribution in kind). They constitute the company's resources
The different sources of capital contributions
The capital may be formed by:
- One or more entrepreneurs running the company project
- External company investors (private or public)
- Individual external investors
In the last two cases, this is referred to as risk capital.