Increases From Capital
When a company issues shares of common and preferred stock, the shareholder’s equity section of the balance sheet is increased by the issue price of the shares.
A company may raise stockholder’s equity by issuing shares of capital to pay off its debts and reduce interest costs.
Why do companies increase authorized shares?
A company that issues all of its authorized stock will have its outstanding shares equal to authorized shares. The number of authorized shares is typically higher than those actually issued, which allows the company to offer and sell more shares in the future if it needs to raise additional funds.
What does increase share capital mean?
Share capital consists of all funds raised by a company in exchange for shares of either common or preferred shares of stock. A company that wishes to raise more equity can obtain authorization to issue and sell additional shares, thereby increasing its share capital.
How can a company increase its share capital?
Hence, if a company having an authorised capital of Rs.10 lakhs and paid-up capital of Rs.10 lakhs would like to induct new shareholders, it can do so either by: Increasing authorised share capital and issuing new shares. (or) Transferring shares from existing shareholders to the new shareholders.
What are the advantages of share capital?
Advantages of Share Capital
One of the attractions of raising capital via the sale of shares is that the company does not have repayment requirements for the initial investment or for interest payments. This can make it more appealing than other forms, such as bank loans and bonds, that are debts of the company.