Capital stock is the total number of shares of every class, common and preferred together, that a corporation’s charter, its articles or certificate of incorporation, authorizes it to issue. It is also the equity caption that carries those classes on a balance sheet, the sense a corporate return uses, where the figure is the par or stated capital of the shares actually issued rather than the authorized count. Cornell’s Wex reads the term the same way, as authorized stock, all common stock and preferred stock a corporation is legally allowed to issue (Cornell LII, Wex, capital stock).
That aggregation is what separates capital stock from its parts. Common stock is one class, the residual one. Preferred stock is another, defined by whatever preference the charter or the issuing resolution gives it. Capital stock names the whole authorization those classes sit inside, so where a corporation has authorized both, a figure covering only one of them is not the capital stock figure.
The Ceiling the Charter Sets
The authorization is a ceiling, and moving it takes a charter amendment rather than a board decision. Delaware lists the power among the amendments a corporation may make to its certificate of incorporation, to increase or decrease its authorized capital stock or to reclassify the same, by changing the number, par value, designations, preferences, or relative, participating, optional, or other special rights of the shares (8 Del. C. § 242(a)(3)).
The vote that carries such an amendment, and the narrow amendments that need none, are in outstanding shares, and the ladder from authorized down to issued and then to outstanding is in issuance.
The Other Capital Stock
Economics uses the same two words for something with no shares in it. There capital stock means the stock of produced assets a country or a sector uses in production. The Bureau of Economic Analysis prepares estimates of capital stocks for private and government fixed assets, and defines fixed assets as produced assets used repeatedly, or continuously, in the processes of production for more than 1 year, covering structures, equipment and intellectual property products (BEA, Concepts and Methods of the U.S. National Income and Product Accounts, Chapter 2).
Nothing joins the two senses except the word. One is a share count fixed by a charter, the other a measured quantity of produced assets used in production. Read which is meant off the document: a balance sheet, a charter or a corporate return means shares, a national accounts table means productive capital.
Where a US Firm Meets the Caption
On a C corporation return the aggregate sense is printed on the form. Under Liabilities and Shareholders’ Equity, Schedule L puts capital stock on line 22 and splits it by class, preferred stock on line 22a and common stock on line 22b, with additional paid-in capital on its own line 23 (IRS, Form 1120, Schedule L).
One caption, both classes, the definition rendered as a form line. What lands in it is the par or stated capital rather than the cash the shares raised, worked through in common stock, and the lines closing the equity block beneath it are in stockholder equity.
What Capital Stock Is Confused With
Common stock is one class inside capital stock rather than a synonym for it.
Issued shares are the ones the board has actually put out, a count that sits at or below the authorized number and never above it, and outstanding shares are narrower again wherever the corporation holds stock it bought back.
Treasury shares are issued shares the corporation reacquired and still holds. Where they are carried at cost they reduce equity as a separate deduction rather than shrinking the capital stock line, and the alternative treatment, along with what else that status changes, is in treasury shares.
Common Questions
Credit, because it is an equity account. Issuing shares credits it and it carries a credit balance. A retirement of shares debits it, and so does a repurchase the corporation accounts for as retired stock, a treatment reacquired shares may be given instead of the cost method (Accounting Research Bulletin No. 43, Chapter 1, Section B, paragraph 7(b)).
A buyback carried at cost goes to a separate contra-equity account instead, which is why Schedule L subtracts the cost of treasury stock on a line of its own rather than netting it against the capital stock line (IRS, Form 1120, Schedule L). The convention behind normal balances is in debit vs credit.
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