types of capital

Capital is a fundamental concept in economics and finance, playing a crucial role in driving economic growth, investment decisions, and wealth creation. In this comprehensive post, we will delve into the various aspects of capital, its types, significance, and the ways it influences our economies.

What is Capital? Capital, in the context of economics, can be broadly defined as the assets and resources used to generate income, and wealth, or facilitate economic production. It represents the accumulated wealth in the form of money, physical assets, intellectual property, and financial instruments that individuals, businesses, or governments possess. Capital is a key factor of production, alongside labor and land, and contributes to the overall economic output.

Types of Capital:

  1. Physical Capital: Physical capital refers to tangible assets used in the production process, such as machinery, equipment, buildings, infrastructure, and transportation systems. It includes both the private capital owned by businesses and the public capital owned by governments.
  2. Financial Capital: Financial capital represents monetary resources, including cash, savings, stocks, bonds, and other financial instruments. It is primarily used to invest in physical capital or fund business operations. Financial capital is crucial for facilitating trade, investment, and economic transactions.
  3. Human Capital: Human capital encompasses the knowledge, skills, expertise, and abilities possessed by individuals, which contribute to their productivity and earning potential. It includes formal education, training, work experience, and personal qualities that enhance an individual’s productivity and employability.
  4. Social Capital: Social capital refers to the value derived from social relationships, networks, and interactions. It includes trust, cooperation, social norms, and the ability to access resources through social connections. Social capital plays a vital role in business transactions, community development, and economic cooperation.

Significance of Capital:

  1. Economic Growth: Capital accumulation is a primary driver of economic growth. Investments in physical and human capital enhance productivity, innovation, and technological advancements, leading to increased output, higher living standards, and improved economic performance.
  2. Entrepreneurship and Innovation: Capital is essential for entrepreneurs to start new businesses and drive innovation. It provides the necessary resources to develop and market new products, services, and technologies. Capital availability is often a determining factor for entrepreneurial success.
  3. Job Creation: Capital investment contributes to job creation by enabling businesses to expand their operations, hire more employees, and invest in new technologies. As businesses grow, they generate employment opportunities and contribute to reducing unemployment rates.
  4. Infrastructure Development: Capital plays a vital role in building and maintaining infrastructure, such as transportation systems, power plants, communication networks, and public facilities. Adequate infrastructure facilitates economic activities, attracts investments, and supports overall economic development.
  5. Wealth Creation: Capital accumulation enables individuals and businesses to generate wealth over time. By investing capital in productive assets, individuals can earn returns and build financial security. Furthermore, capital markets allow for wealth creation through investments in stocks, bonds, and other financial instruments.

Capital serves as the backbone of economic growth and development, acting as a catalyst for investment, entrepreneurship, innovation, and job creation. Its various forms, including physical, financial, human, and social capital, collectively contribute to the overall economic well-being of individuals, businesses, and societies. Recognizing the significance of capital and ensuring its efficient allocation and utilization is crucial for fostering sustainable economic growth and prosperity.

how companies raise capital and types of capital. There are different types of capital available to a company. These include: the company capital can be shares or stocks


The methods by which a company raises capital or issue its shares….. read my post on types of shares here.….. are:

  • By prospectus: A prospectus, giving particulars of the company and its business, is published with an application form. Shares are allotted to those who apply.

meaning of economics

  • By offer for sale: The whole issue of shares is allotted to an issuing house (merchant bank, finance house) which offers them to the public by means of a document known as “offer for sale.”

  • By placing: This is the method of issuing securities through an intermediary such as a firm of stock brokers. The intermediary will endeavour to place the issue among its institutional investors.
  • By a right issue: When a company is established, it may raise further capital by offering the shares concerned to existing members on favourable terms.

  • By introduction: The company concerned can apply to the stock exchange for sales of its shares. There will be an offer to the public of a new issue of shares through the stock exchange.


There are different types of capital available to a company. These include:

  •  Issued capital: This represents the part of the authorized capital given out to members of the public for subscription. It is after the issued capital is fully subscribed that it can now be referred to as subscribed capital.
  •  Reserved capital: This represents the portion of the capital not called up, which the directors have assumed to be incapable of being called up at any time. The uncalled-up capital is a liability to the company and is set aside for future expansion.

  •  Authorized capital: This is also called nominal or registered capital. This is the highest amount of capital stipulated in the memorandum of association considered as enough to set up and run a company.
  •  Called-up capital: This is the portion of the capital which the management considers good enough to be called up on the issued shares.

163. TICK
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