Share capital financing for private companies : a comparative study

Abstract

Setting up a business requires a substantial amount of careful planning such as whether it is feasible or not. However, when this decision is taken, the next requirement is considering the financing of such a business. The primary source of finance is the company's share capital. A relatively common question asked by businessmen on this subject is: 'What is the required amount of share capital for this company?' The Companies Act provides us with the minimum amount of share capital allowed both for public and private companies. However, this is considerably low and thus does not answer the question. The banks here in Malta complain that many of the firms are under-capitalised. On the other hand, however, they do not provide businessmen with any guidelines on what the amount of share capital should be. Therefore the objective of this dissertation is to carry out a study on what this required level of share capital financing should be. My main focus shall be on private companies. This would depend on various factors, especially the type and size of the business. I shall be making an analysis of what the levels of share capital are in Malta, together with a comparison of the factors taken into consideration by professional accountants in Malta and in other European countries.