Capital stock has to do with all the shares of stock that represent the ownership of a given company. The exact number of shares that can be issued in the way of capital stock is normally recorded in the current balance sheet for a company. Capital stock will involve all types or classes of stock that the company is authorized to issue.
The basis for issuing capital stock is normally outlined in the charter of the corporation. Often, the charter will specify not only the number of shares that can be included as part of the issuance, but also define the class or classes of stock that the corporation will release for issue. It is not unusual for a company to issue both common stock along with preferred stock as part of the overall strategy. The common stock may be provided to hourly employees of the company as part of the benefit package, while the preferred stock is open for issue to any outside investor.
Generally, capital stock is issued at a nominal value, but may increase in value over time. There is also the possibility of additional shares of capital stock coming available as the company expands its operations and begins to realize higher profits. When this happens, it is necessary for current investors to work with board members to amend the charter of the company, making it legal to issue more shares of stock. At the same time, the company must work within the financial laws currently in place in the country of jurisdiction to determine the maximum number of shares that the company can publicly trade.
The charter of the company will also address the total value of stock that can be issued. This total value will of course impact the number of shares of capital stock that the corporation can issue under current circumstances. Generally, when the charter is amended and the Articles of Association updated, existing stockholders are notified and given the opportunity to purchase the newly issued shares on the open market.
