What is nominal capital? (with photo)

Nominal capital is the amount of capital that a company can offer to shareholders, in the form of shares.

Sometimes called authorized capital, nominal capital is the amount of capital a company can offer to shareholders, in the form of shares. In most nations, the value of this nominal share capital is regulated by government agencies that determine the financial stability of the business and the company’s ability to cover the value of these shares. These same regulations also govern the number of shares that can be issued, based on the assets the company has on hand to back those shares.

While government regulations place limits on the amount of shares a company can issue, most companies choose not to make an offering comprising all of their nominal capital. More often, only a portion of the capital is used to create equity offerings and issue shares. This creates a situation where the company is able to offer a second share offering at some point in the future when the owners and directors determine that issuing additional shares would be in the best interests of the company.

For example, a company may have $1,000,000 of US Dollars (USD) in nominal capital. Instead of issuing shares representing this entire amount, the company prepares an offering consisting of $400,000 USD. Assuming that all shares in the offering are sold to investors, and those shares begin trading at a value above the share price set in the initial offering, the company carries out a capital increase even though investors earn returns on the shares they purchased . Subsequently, the company may issue additional shares that represent another portion of the nominal capital, providing the opportunity for the shares to be traded aggressively and help to increase the market value of the shares.

See also  What is a budget? (with photos)

If the stock doesn’t increase in value, or if it actually starts to fall below the initial offering price, the company is somewhat protected from incurring crippling losses. Since only a part of the nominal capital is tied to the stock offering, the rest of the company’s assets are protected against loss, and the business can continue to operate despite the loss. By taking steps to cut expenses and generate more return on products sold, the company is more likely to make up for the loss, even as it seeks to conquer new sectors of the consumer market and possibly overcome the factors that led to the unit price drop.

Leave a Comment