What is share capital?

• A. The money saved in a reserve
• B. Finance raised by selling shares in the business to investors
• C. Loans from banks
• D. Retained earnings

Answer: (B)

Share capital is the finance raised by selling shares in the business to investors. When the company issues shares, it gains funds without taking on debt, and the new shareholders become part-owners with potential voting rights and a claim to profits through dividends. This money sits in the company as equity and is shown on the balance sheet as part of shareholders’ funds. It contrasts with other ways to fund a business: money saved in a reserve comes from profits already earned and earmarked for future use (internal financing), loans from banks are borrowed funds that must be repaid with interest (debt financing), and retained earnings are profits kept in the business instead of being distributed as dividends (also internal financing). So share capital specifically refers to funds raised through issuing shares to investors, not to internal profits or borrowed money.