What is nominal capital?

sometimes referred authorized capital , nominal capital It is the amount of capital that a company can offer to shareholders, in the form of shares. In most countries, 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 protect 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 to back those shares.

While government regulations limit the number of shares a company can issue, most companies choose not to make an offering comprising all of their nominal capital. Most of the time, only a part of the capital is used to create share offerings and issue shares. This creates a situation where the company may 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 US Dollars (USD) in nominal capital. Instead of issuing shares representing this total amount, the company prepares a composite offering of $400,000. Assuming that all the shares in the offering are sold to investors, and those shares begin trading at a value greater than the share price stated in the initial offering, the company carries out a capital increase even if investors earn returns on the shares they purchased. . Thereafter, the company may issue additional shares representing another portion of the nominal capital, timing the release so that the shares trade aggressively and help increase the market value of the shares.

If the stock fails to appreciate or actually starts to fall below its initial offering price, the business is somewhat insulated from incurring a crippling loss. As only a part of the nominal capital is tied to the stock offering, the company's other assets are protected against loss and the business can continue operating despite the loss. By adopting measures to reduce expenses and generate greater return on products sold, the company is more likely to compensate for the loss, even as it seeks to conquer new segments of the consumer market and, possibly, eliminate any factors that lead to the fall in the unit price. shared actions