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What is Capital Stock? A Comprehensive Legal Overview
Definition & Meaning
Capital stock refers to the total number of shares that a corporation is authorized to issue, as specified in its charter or articles of incorporation. This includes both common stock and preferred stock. If the majority of shareholders agree, a corporation can increase its capital stock. Additionally, capital stock can represent the stated or par value of the capital that is permanently invested in the corporation. When a corporation only has one class of stock, that common stock is often referred to as capital stock.
Table of content
Legal Use & context
Capital stock is primarily used in corporate law and finance. It plays a crucial role in determining ownership, voting rights, and dividend distribution among shareholders. Understanding capital stock is essential for corporate governance and compliance with state regulations. Users can manage related procedures, such as issuing new shares or amending corporate charters, using legal templates from US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A corporation has authorized one million shares of capital stock. The board of directors decides to issue 500,000 shares of common stock to raise funds for expansion.
Example 2: A corporation with existing capital stock of 200,000 shares seeks to increase its total authorized shares to 300,000. This requires approval from the majority of shareholders. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Capital Stock Regulations
California
Requires specific disclosures in articles of incorporation regarding capital stock.
Delaware
Allows flexible capital stock structures and is popular for incorporation.
New York
Imposes specific minimum capital requirements for certain types of corporations.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Differences
Common Stock
Shares representing ownership in a corporation with voting rights.
Common stock is a type of capital stock; not all capital stock is common stock.
Preferred Stock
Shares that provide dividends before common stock and have priority in asset liquidation.
Preferred stock is another type of capital stock with different rights compared to common stock.
Common misunderstandings
What to do if this term applies to you
If you are involved in a corporation and need to understand capital stock, consider reviewing your corporation's charter or articles of incorporation. If you plan to issue new shares or change the capital stock structure, you may want to consult legal templates available on US Legal Forms. For complex situations, seeking professional legal advice is recommended.
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Capital stock includes both common and preferred shares.
Majority shareholder consent is needed to increase capital stock.
State regulations can vary significantly regarding capital stock.
Key takeaways
Frequently asked questions
Capital stock refers specifically to the shares authorized for issuance by a corporation, while equity represents the ownership interest in the corporation, which includes capital stock and retained earnings.
Yes, a corporation can change its capital stock, but it typically requires the consent of the majority of shareholders.
The par value is the nominal value assigned to a share of stock, which is often used for accounting purposes.