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The emergence of funds as capital was closely connected with the growth of the
capitalist class in the sixteenth century as opposed to the earlier guild system. 3
In modern company law, capital deals with share capital contributed by shareholders
and debt capital advanced by creditors. 4 Share capital confers rights in the company
to the shareholders, while debt capital concerns a set of rights against a company
arising from a contractual relationship between a debtor and a creditor. 5 Share capital
funds are made up of either wholly-paid or partly paid shares which represent the
legal measure and the actual amount subscribed by shareholders. 6
Capital, under company law, refers to contributions in money or money‟s worth by
shareholders in exchange for shares. 7 The company then utilises the earnings for its
commercial activities and any gains from these constitutes the company‟s true
capital. 8 The money fund is then invested in assets of the company for the business
of the company. 9 Although share capital has been used to pay for real assets in the
company, the share value is not reflected in the value of net assets. 10 Instead, it
depends on the supply and demand for shares.
3 In the guild system, the principal assets were the skill and connection of tradesman. (John Farrar
“The Concept of Capital and the Financing of Companies” in John Farrar (Ed.) Companies and
Securities Law (Brookers, Wellington, 2008) ch 23 at [23.1] [“The Concept of Capital”]).
4 Farrar and Hannigan above n2 at 156-158.
5 LCB Gower Modern Company Law (6 th ed., Stevens, London, 1997) at 321.
6 David Waiman Company Structures: Law, Tax and accounting for Companies and Groups Growing
and Evolving (Sweet & Maxwell, London, 1995) at 107-108.
7 Ibid.
8 Ibid; see also Farrar and Hannigan above n2 at 156.
9 Ibid.
10 Ibid.
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