What does share capital represent in a business?

Share capital represents the monetary value that shareholders contribute to a company in exchange for ownership shares. This capital is essential for funding a business's operations and growth, providing the initial investment required for various projects and business activities. When individuals or entities purchase shares, they are effectively investing their money into the company, and this money becomes a crucial part of the company’s equity base.

In essence, share capital is a reflection of the ownership stake that shareholders have in the company, which is directly linked to their financial investment. It is important for companies as it helps them raise funds without incurring debt, unlike borrowed funds which create obligations to repay. Understanding share capital is fundamental in grasping the financial structure of a business and its funding mechanisms.