What is Capital Stock?

Capital stock is comprised of all types of shares issued by a corporation. An alternative definition of capital stock is that it is comprised of the total number of common shares and preferred shares that are authorized for issuance. This amount may be substantially larger than the number of shares actually issued.

A business that has a relatively small amount of capital stock is said to be thinly capitalized, and probably relies upon a significant amount of debt to fund its operations. Conversely, an entity with a large amount of capital stock requires less debt to fund its operations, and so is less subject to the negative effects of changes in interest rates.

How to Increase Capital Stock

A change in the corporate charter is needed to increase the number of shares authorized for issuance. This typically requires the approval of the shareholders, which may be obtained from a mail-in ballot or during a shareholders’ meeting.

Presentation of Capital Stock

The funds received from capital stock are recorded within the stockholders' equity section of the balance sheet. This section is located near the bottom of a balance sheet, after the presentation of asset and liability line items.

Examples of Capital Stock

The capital stock classification includes common stock, and may also include several types of preferred stock, such as Series A preferred stock and Series B preferred stock.