What is Capital Stock?
Capital stock is the highest number of shares a particular company can issue. It is indicated in the company’s charter with the stock value listed as part of the balance sheet.
Capital stocks include both the common stocks and preferred stocks of a particular company. Common stocks are those that benefit from appreciation of capital. Any increase in the value of stocks will result in appreciation of capital. This way, holders of common stock may make some profit if he/she decides to sell stocks with the new market price. Common stock holders will also get dividends usually on a quarterly basis. But aside from the stock and monetary benefits for common stock holders, they also have the right to vote on some of the company’s concerns like the selection of officers or board members. Preferred stock holders meanwhile may not get as much profit as those with common stocks. But preferred stocks are said to be a more stable form of investment. It also has dividends; but these are guaranteed regardless of the market price value of stocks. Instead, the value of preferred stocks depends on the current interest rates. If these rates go up, the value of preferred stocks usually go down. And if the interest goes down, one can expect an increase in value of his/her preferred stock.
Typically, capital stocks are declared at book value or nominal value. But this value may be adjusted over time. In case where a company grows bigger and goes into expansion, its profits may become higher with the possibility of more shares being available for issuance. If indeed this happens, companies may opt to amend their charter to increase the number of capital stocks for issuance. But this process will have to go through the company’s board members and are subject to business and financial laws.