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What Is Capital Stock?

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Capital stock is the total amount of stock authorized for issue by a corporation. In simple worlds it is the highest number of shares a particular company can issue. Capital stocks include both the common stocks and preferred stocks of a particular company. The exact number of shares that can be issued in the way of capital stock is normally recorded in the current balance sheet for a company. Capital stock involve all types or classes of stock that the company is authorized to issue. The basis for issuing capital stock is normally outlined in the charter of the corporation. Charter is basically a document describing the purpose,place of business, and other details of a corporation. Often, the charter will specify not only the number of shares that can be included as part of the issuance, but also define the class or classes of stock that the corporation will release for issue. Usually companies issue both common stock along with preferred stock as part of the overall strategy.

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Common stocks is a primary security that represents ownership in a corporation. It benefit from appreciation of capital. Any increase in the value of stocks will result in appreciation of capital. This way, holders of common stock make some profit if they decides to sell stocks with the new market price. Common stock holders will also get dividends usually on a quarterly basis. But aside from the stock and monetary benefits for common stock holders, they also have the right to vote on some of the company’s concerns like the selection of officers or board members.

Preferred stock is a type of stock that has characteristics of both common stock and fixed income securities. Preferred stock holders may not get as much profit as those with common stocks. But preferred stocks gives the holder ownership in a corporation and are said to be a more stable form of investment. It also has dividends; but these are guaranteed regardless of the market price value of stocks. Instead, the value of preferred stocks depends on the current interest rates. If these rates go up, the value of preferred stocks usually go down. And if the interest goes down, one can expect an increase in value of his/her preferred stock. Types Of Preferred Stocks

 

Typically, capital stocks are declared at book value or nominal value. But this value may be adjusted over time. In case where a company expands and goes into expansion, its profits may rise with the possibility of more shares being available for issuance. If indeed this happens, companies may opt to amend their charter to increase the number of capital stocks for issuance. But this process will have to go through the company’s board members and are subject to business and financial laws.

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