Share Capital

It is the shares to be subscribed and paid in or

secured to be paid in by the shareholders, either
Definition in money, property or services, at the time of
organization of the corporation or afterwards,
and upon which it is to conduct its operations.
Types of Share Capital
1. Legal Capital (Paid-in-Capital)
2. Share Premium (Additional Paid-in-Capital)
Legal Capital (Paid-in-Capital)
Capital contributed by shareholders comes from the sale of shares of stock.
The shares of stock issued are generally referred to as share capital. Legal
capital is that portion of the contributed capital or the minimum amount of
paid-in capital, which must remain in the corporation for the protection of
corporate creditors. The amount of legal capital is determined as follows:
• In case of par value shares, legal capital is the aggregate par value of all
issued and subscribed shares.

• In case of no-par shares, legal capital is the total consideration received by

the corporation for the issuance of its shares to the shareholders including
the excess of issue price over the stated value (Section 6, par. 3,
Corporation Code of the Phils.).
Share Premium (or Additional Paid-In Capital)
It is the portion of the paid-in capital representing amounts paid by
shareholders in excess of par. It may also. result from transactions
involving treasury stocks, retirement of shares, donated capital, share
dividends and any other "gain" on the corporation's own stock
transactions.
Two Basic Type of Shares
1. Ordinary Share.
2. Preference Share.
Two Basic Type of Shares
1. Ordinary Share. This share represents the basic ownership class of
the corporation. When only one class of share is issued, it must be
ordinary share. Ordinary shares are the entity's residual equity.
2. Preference Share.
Two Basic Type of Shares
1. Ordinary Share.
2. Preference Share. This share gives its owners certain advantages
over ordinary shareholders. These special benefits relate either to
the receipt of dividends when declared before the ordinary
shareholders (preferred as to dividends) or to priority claims on
assets in the event of corporate liquidation (preferred as to assets)
TERMS RELATED TO SHARE CAPITAL
1. Authorized Share Capital
2. Issued Share Capital
3. Subscribed Share Capital
4. Outstanding Share Capital
5. Treasury Stock
TERMS RELATED TO SHARE CAPITAL
• Authorized Share Capital. The number of authorized shares indicates the
maximum number of shares the corporation can issue as specified in the
article of incorporation. This maximum number of shares when multiplied
by the par value of the share will yield the authorized share capital. Note
that any increase or decrease in the authorized share capital requires prior
approval of the SEC and formal amendment to the articles of
incorporation.
• Issued Share Capital. These are shares which have been sold and paid for
in full. Issued shares may include treasury shares. Share Capital, either
Ordinary Shares account or Preference Shares account, is credited for the
total par value of fully collected subscriptions or in the case of no-par value
shares, for the total consideration received in relation to the issue. Share
Capital is debited only when the issued shares are retired, redeemed or
canceled by the corporation.
TERMS RELATED TO SHARE CAPITAL
• Subscribed Share Capital. It is the portion of the authorized share capital
that has been subscribed but not yet fully paid. This shareholders' equity
account is credited for the total par value of the shares subscribed and
debited for the total par value of the fully collected subscriptions.
• Outstanding Share Capital. These are issued shares, which are in the hands
of' the shareholders. The number of outstanding shares will equal the
difference between the issued shares and the treasury shares.
• Treasury Stock. These are issued shares acquired by the corporation but
not retired and are therefore, awaiting to be reissued at a later date.
Retained Earnings
Definition
Retained earnings is not a cash fund waiting to be distributed as
dividends. Instead, it is an owners' equity account representing claim
on all assets in general and not on any asset in particular. In fact, the
corporation may have a sizeable balance in this account but may not
have cash to pay a cash dividend. Shareholders are not guaranteed
dividends and dividends do not become a liability of the corporation
until the board of directors has formally declared a dividend
distribution. Section 43 of the Corporation code states that dividends
should only be declared out of the unrestricted retained earnings.
Thus, dividends cannot be declared out of the legal capital of the
corporation for the security of its creditors.
Dividends
Dividends may take the form of cash, property or additional shares of
stock of the corporation. As a general rule, any form of dividend
declaration should be based on the total subscription of a shareholder
and not merely on the shares already paid. Subscribers are considered
shareholders from the time their subscriptions are accepted by the
corporation and not from the time they are issued stock certificates.
Three Important Dates
• Date of Declaration
• On the date of declaration, the board of directors will adopt a
resolution declaring that a dividend is to be paid. The resolution will
specify the amount, type and date of payment of this dividend. It will
also set a date of record. Cash dividends are declared solely by the
board of directors while share dividends will necessitate the
concurrence of at least two-thirds of the outstanding shareholders.
Three Important Dates
• Date of Record
• A list of shareholders entitled to the declared dividends is prepared at
the date of record. If an investor buys a share of stock after this date,
he will not receive the dividend. The share is said to be traded ex-
dividend. No entry is required on this date.

• Date of Payment
• The corporation settles its liability on this date. An entry is made
debiting the dividend liability or shares distributable account and
crediting cash, property distributed or share capital.