Nominal capital definition
/What is Nominal Capital?
Nominal capital is the aggregate par value of those shares that have been issued by a corporation. Since par value is typically set at $0.01 per share, the total nominal value of a company is quite low. In cases where there is no par value at all, a firm has no nominal capital.
The amount of nominal capital that a business has recorded on its books is not necessarily the same as the total capital that it has raised from the sale of its shares. For example, if a company has sold 10,000 shares of its common stock for $5 per share when the par value of each share was $0.01, then the total capital raised would be $50,000, while the amount of its nominal capital from the sale of these shares would only be $100.
Example of Nominal Capital
A business sells 1,000,000 shares of its common stock to investors. These shares have a par value of $0.01 per share. Given this information, the nominal capital of the business is $10,000 (calculated as 1,000,000 shares x $0.01 par value per share).
FAQs
Can Nominal Capital be Reduced?
Nominal capital can be reduced through a formal process known as capital reduction, which typically requires shareholder approval and regulatory authorization. This may involve canceling unissued shares, reducing the par value of issued shares, or repurchasing and canceling existing shares. The reduction must comply with legal safeguards to protect creditors and maintain the company's financial stability.