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Nominal Value of Shares
Curious about the “nominal” value of shares and how it might differ from a share’s market value? Let’s dive deeper into shares and the meaning of nominal value and market value shares.
What exactly are “Shares”?
Shares are a divided-up unit of the value of a company. There is a specific percentage of each share in the whole business. These are a portion of the company limited by shares. Shareholders are the individuals who hold shares in the shareholding company. The number of shares held by an individual reflects the control or ownership of that member over the company.
How many Shares can be issued by a Company?
There is no upper limit of shares which may be issued by the company. The company may issue as many shares as it deems necessary during its incorporation or after the formation of the company. The minimum number of shares that can be issued by a company is one. When a limited company is set up by an individual, this is normal. To better understand it, here are a few examples of issuing shares by the company.
- One issued share = 100% company ownership
- Two of equal value = 50% ownership per share
- 10 of equal value = 10% ownership per share
- 100 of equal value = 1% ownership per share
Where a business has a net worth of £100 million and there are 50 million shares, each share is worth £2. There may be fluctuation in share value but we’ll get into that in a minute.
The shares are issued by the company in order to raise capital. Company shares are purchased by the investors in a belief that the company will be a profitable success and they will be able to have their share of its success.
The Market and Nominal Value of Shares
Shares have both nominal as well as market value. The difference between each is known as a premium.
- Market value of shares
The market value of a share is the value or the amount at the point at which it is worth being sold. It differs from the nominal value of shares.
- Nominal value of shares
The nominal value is the minimum amount which a member has already paid or agreed to pay for their shares in the company. Typically, the nominal value of a share is £1. In case of company debts or winding up order against the company, this is the amount or percentage a member needs to pay.
The nominal value reflects the limited liability of the owners. The nominal value is calculated by dividing the value of total paid-up share capital of the company by the total number of the shares outstanding at the particular point of time.
A Statement of Capital Requests an Aggregate Nominal Value
An official form mentioning issued shares of a company and their status at a specific date is a statement of capital. This form must be completed during the incorporation of the company and on the date of an annual confirmation statement.
The statement of capital essentially provides a summary of shares issued and also the rights that come with the different share types and the denomination and currency of those shares. A statement of capital must contain the aggregate nominal value.
What Is the Aggregate Nominal Value?
As mentioned above, a statement of capital must contain the aggregate nominal value. It is calculated by multiplying the number of issued shares by the nominal value of each share. Where there are multiple classes of shares, then each class has to be calculated.
The aggregate nominal value of the company’s shares is calculated by multiplying the number of shares in issue by the nominal value of each share. If there are multiple share classes, then each class has to be calculated with the figures subsequently added together.
To take an example, there are two classes of shares: Ordinary shares £1 and Preferential shares £0.10.
The ordinary shares in the issue are 100 and the preferential shares are 10, so the aggregate nominal value of the ordinary class of shares is 100 * £1= £100 and of preferential shares is 10* £1 = £1. A statement of capital must contain an aggregate nominal value of worth £101.
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