We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Legal Capital?

By Osmand Vitez
Updated: May 16, 2024
Views: 19,038
Share

Legal capital is the value of a company’s outstanding equity shares. This value is maintained on the company’s accounting general ledger and is restricted from being used for dividends or other distributions. The amount of legal capital is based on the par value of the stock when it is issued on the open stock exchange. Par value has no relation to the actual market value of stock or the price changes of stock being bought and sold between investors. Legal capital and par value are basic items relating to equity investments.

Historically, stock markets were an unregulated industry and required a few basic standards for companies looking to issue stock among individuals and equity investors. The par value of stock was developed to ensure investors were not being sold company stock at different prices. When an initial public offering (IPO) was announced, companies had to declare the par value of its stock. This par value represented the minimum issuing price paid by investors; companies then recorded the total par value as legal capital on its accounting ledger. This allowed companies to maintain basic accounting values in unregulated securities markets for common stock.

Common stock tickets were printed and issued with par values listed for investments purposes. Equity investors could reasonably estimate the amount of legal capital a company had on its accounting ledgers by reviewing all issued stock tickets. This information would then be compared to the company’s financial statement to determine if any improprieties exist in the company’s equity balance.

Legal capital has largely become an archaic stock investment tool in today’s business world. Most common stock today is issued at par value of $.01 or with no par value at all. Common stock with no par value is allowed to have a set amount of legal capital set aside by the company’s board of directors or other management entity. This capital must remain on hand after all dividends or distributions are made to shareholders.

Most common stock IPOs do not have dividends attached to the stock purchases. Dividends are only paid out on preferred shares of stock. Par value for preferred shares is still important in today’s business market and must be declared by companies issuing preferred stock. Dividends may be calculated as a percentage of the total par value of the stock. The total par value of preferred stock must be reported as legal capital on the company’s balance sheet. Most companies must report preferred stock separate from the total common stock capital on financial statements.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
Share
https://www.smartcapitalmind.com/what-is-legal-capital.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.