Quick answer
Share capital is contributed equity arising when a corporation issues shares to investors. It records the owners’ investment under the applicable legal and accounting requirements; it is not revenue earned from customers.
A share gives its holder rights defined by the corporation’s articles, corporate law, and the terms of the share class. When those terms qualify as equity for accounting purposes, an issue for cash or other consideration increases contributed equity rather than income. Some legally issued shares instead create an accounting liability because of their payment obligations. The legal label alone does not settle the classification.
Classes and rights
Corporations may issue more than one class of shares. Voting, dividend, redemption, conversion, and liquidation rights can differ. Labels such as “common” and “preferred” are only starting points; classification and measurement depend on the contractual substance and applicable framework.
Canadian corporate-law context
Under the federal Canada Business Corporations Act (CBCA), shares are without nominal or par value. Provincial corporate law may differ, and the accounting still depends on the actual consideration, share terms, and reporting framework.
Issue common shares for cash
Maple Fabrication Ltd. issues 10,000 common shares for $75,000 cash. The stated facts contain no issue costs, compound-instrument terms, or non-cash consideration.
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| Account | Debit | Credit |
|---|---|---|
| Cash | 75,000 | |
| Common Shares | 75,000 |
Financial-statement effect
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| Statement | Account | Effect |
|---|---|---|
| Balance sheet | Cash | Assets increase by $75,000 |
| Balance sheet | Share Capital | Equity increases by $75,000 |
| Income statement | Revenue | No effect; the contribution is not earned revenue |
| Cash flow statement | Share issue proceeds | Financing cash inflow of $75,000 |
- Balance sheet
- AccountCash
- EffectAssets increase by $75,000
- Balance sheet
- AccountShare Capital
- EffectEquity increases by $75,000
- Income statement
- AccountRevenue
- EffectNo effect; the contribution is not earned revenue
- Cash flow statement
- AccountShare issue proceeds
- EffectFinancing cash inflow of $75,000
Reacquiring the company’s own shares
A company can buy back shares it previously issued. The payment is a transaction with owners, so it reduces equity and never creates a gain or loss in profit. IAS 32 deducts the consideration from equity, and ASPE Section 3240 treats own-share dealings as capital transactions.
Under CBCA section 39, reacquired shares are generally cancelled or restored to authorized but unissued status, subject to statutory exceptions. The legal stated capital reduction is proportional to the shares acquired. Accounting share capital and legal stated capital are distinct records and need not be identical.
For an ASPE cancellation, reduce share capital using the class’s average carrying amount per share. An excess purchase price first uses contributed surplus from prior cancellations or resales of that class, then the applicable proportion of other contributed surplus for the class, and finally retained earnings. This allocation is summarized in BDO’s Section 3240 guide. Where a company may hold reacquired shares—often called treasury shares—their cost is instead carried as a deduction from equity until they are cancelled or resold.
Repurchase and cancel common shares
Maple Fabrication later repurchases and cancels 2,000 of its 10,000 common shares for $18,000, or $9.00 each. The shares were issued at an average of $7.50, and their accounting carrying amount is still $7.50 per share. The company applies ASPE, there is no contributed surplus relating to this class, and the shares are classified as equity.
Common Shares decreases by 2,000 × $7.50 = $15,000. The remaining $3,000 paid above the average issue amount reduces Retained Earnings.
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| Account | Debit | Credit |
|---|---|---|
| Common Shares | 15,000 | |
| Retained Earnings | 3,000 | |
| Cash | 18,000 |
Financial-statement effect
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| Statement | Account | Effect |
|---|---|---|
| Balance sheet | Cash | Assets decrease by $18,000 |
| Balance sheet | Common Shares and Retained Earnings | Equity decreases by $15,000 and $3,000 |
| Income statement | Gain or loss | No effect from the repurchase |
| Cash flow statement | Share repurchase | Financing cash outflow of $18,000 |
- Balance sheet
- AccountCash
- EffectAssets decrease by $18,000
- Balance sheet
- AccountCommon Shares and Retained Earnings
- EffectEquity decreases by $15,000 and $3,000
- Income statement
- AccountGain or loss
- EffectNo effect from the repurchase
- Cash flow statement
- AccountShare repurchase
- EffectFinancing cash outflow of $18,000
Changes after issue
Cancellations, conversions, share-based payments, issue costs, and instruments with redemption obligations require separate analysis. They are outside the simple issue and repurchase examples here because they can change classification, measurement, or timing. A legal share is not automatically equity for financial-reporting purposes when its terms create a contractual obligation. Under ASPE, Section 3856 determines liability-versus-equity classification before Section 3240’s own-share accounting is applied.
Share capital presentation
The balance sheet reports the closing contributed-capital balance. The statement of changes in equity reconciles opening balances, issuances, repurchases, and other changes by component. Notes explain classes, authorized and issued shares, rights, and other material details required by the applicable framework.
Common errors
- Recording share proceeds as revenue.
- Assuming every share has identical rights.
- Using “par value” mechanically for a federally incorporated Canadian company.
- Assuming a legal share label determines accounting classification without reading its terms.