What does share capital in a business represent?

Share capital in a business represents the investment made by shareholders. This capital is raised when a company issues shares to investors, who become part owners of the business. Shareholders provide this financial support in exchange for ownership stakes, which can increase or decrease in value based on the company's performance and market conditions.

In contrast, funds borrowed from banks and loans secured from creditors are considered liabilities rather than share capital, as they represent money that the business must repay, often with interest. Retained profits, while also an important financial component, refer to earnings that have been retained in the business rather than distributed to shareholders as dividends; these profits are not the direct investment from shareholders but rather accumulated earnings. Thus, share capital specifically denotes the funds that shareholders invest in the company, distinguishing it from other sources of financing.