Types of Capital

In referring to shareholders ‘owning’ the company what do we mean? Simply it is those people who have supplied the capital to run the concern. Regardless of size, a business must be provided with some money at the beginning to enable it to start and will continue to need some throughout its life. The shareholders supply this money in the expectation of receiving income (dividends) and in the hope that this income will be at least as good as placing their money on deposit with a bank. Furthermore, they hope that the company will prosper so that the value of their shares will increase at least as fast as general inflation. Capital within the company is divided into two categories. The first is that which is used to purchase those items, called fixed assets, and needed for the company to operate and which will last for many years. For a shipowner – the ship, for the smallest broker – a desk and telephone. The second category, called working capital, is needed to pay for such things as rent, wages and items with a short life span such as bunkers for a ship owning company or simply stationery for a small shipbroking firm. All of these may well have to be paid for before any profit starts to come in.