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The difference between Share capital (Stock capital) and Real capital

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The capital of a company is a set of assets that can refer to two different concepts. There is the social capital (nominal capital) and the real capital (net worth).

The social capital, also known as nominal capital, is a figure resulting from adding adding the contributions made by all the partners/shareholders of the company. It can be calculated from the sum of the first accounts of the company. The requirement to include the capital in the articles of incorporation and bylaws (in some legal orders, like in Spain) is a reflection of its immobile nature. This is without prejudice to any increases or reductions of capital, which should be stated in these documents already mentioned.

This amount of social capital is used to distribute the voting rights and dividend between shareholders. It is also the first reference used by third parties when need to trust in the company. However, it is true that the amount of the real capital will be, always, a more concise reference, as discussed below.

Instead, the real capital is the result of calculating the current situation of the company, hence it is a variable amount. Its changing nature makes this amount unable to be reflected in public/commercial documents such as bylaws and articles of association.

To obtain the real capital the liabilities are subtracted of the company’s assets. Although at first glance it is simple, sometimes there may be disputed facts. A very simple example is to record as an active non-performing loans, nevertheless another less common example is to record as an active positive claim against the Treasury, which due to the lack of future exercises with benefits never will take place. This is possible because these loans are deductible over a period of time, and no further.

The real capital is basically the sum of the capital plus the results of the exercises closed, either positive or negative results.

To calculate the real capital, which is used to determine the value of a company, it is important to perform a Due Diligence.

Keep in mind that these concepts are independent but closely interrelated. When the real capital decrease in a determined amount, in relation to social capital, the law provides some legal obligations to balance these amounts (the real capital and social capital). Failure to comply with these duties can lead responsibilities to managers and even shareholders.