The definition of social capital is one of the first steps to start the strategic management of any company. Precisely for this reason, it should receive the same attention given to the products and / or services offered by your business. But despite its importance, for many people, the notion of social capital is still very difficult to understand. See saltwaterconnections.org for further editorial
In this post we will help you to understand what this concept is, what its importance is to a company and how to define it within your enterprise. Check out!
What is the social capital of a company?
Capital is understood to be the financial power of an organization. That is, it is the amount invested by the partners so that the enterprise begins its activities. When someone says that a company is worth a certain amount, a part of that market value is related to social capital, which tends to keep pace with the growth and evolution of that business.
However, it is also possible to say that this concept goes beyond the financial perspective. It refers us to three different spheres and the financial one is only a part of that whole. Understand below what each represents:
Refers to the equity of the company, investment of the entrepreneurs to start the activities until the organization can walk with their own legs. Whenever there is an increase or decrease in the investment, the capital stock must be modified by means of the social contract.
When resources are transferred from the shareholders’ equity to the entity’s equity, it can also be called paid-in capital.
It concerns the set of rules of relationship between all the members of an enterprise. This perspective should also be foreseen in the social contract and it is essential to define the power that each partner holds, besides the objective and the way of organization of the business.
Sphere of Responsibility
Directly related to the previous perspective, here limits of responsibility are established to the partners of the company. This concept, generally applied in Limited Companies, takes into account the proportion of each partner’s investment, which is reversed and measured in shares (R $ 1.00 = 1 quota).
Limited Partnership x Joint-stock Company: what’s the difference?
The model of incorporation of a company is also a determining factor for the formation of social capital. There are many differences between them as regards social capital itself, the distribution of responsibilities and financial results. So we need to know them better:
Company Limited (Ltda.)
Here, the capital stock is reversed proportionally in quotas and these quotas represent the percentage of each partner over the business. For example, if you and a friend opened a cafeteria investing $ 15,000 from your pocket and $ 10,000 from him (R $ 25,000 in total), you proportionally own 15,000 quotas and he 10,000. That is, 60% and 40% of the company, respectively.
In this case, if the organization defaults and creates debt , the partners must take responsibility and use their personal assets for the discharge of the same, according to the proportional limit of the shares of the capital stock.
In the Corporations, the company is sliced into shares and the shareholder’s liability is limited to the price of the shares subscribed or acquired, and restricted only to the payment of these acquisitions.
Therefore, in this case, if the company declares bankruptcy, shareholders do not have to pay for losses other than loss of stock and only the company’s equity is compromised.
How to define the social capital of your business?
The first step in sizing up social capital is to carefully assess the scenario in which your market is located and have a very well defined business plan. Working capital , initial company expenses, payroll, billing forecast, cash flow and balancing point are some of the key elements that should be analyzed.
After defining the amount that will guarantee the financial sustainability of the venture, all the partners must meet and indicate what will be the contribution of each one to reach such value. At this point, other than financial aspects can be taken into account, such as a portfolio of clients, know-how or the implementation of new technologies.
It is worth remembering that the most important thing after defining the proportion of investments and responsibilities is to discriminate everything in writing in the so-called social contract . This phase requires a lot of attention, since any changes that need to be made in the share capital must be changed and registered also in the social contract.
What are the benefits of social capital for a company?
Finally, after putting all the points that we speak in order, finally defining the social capital and signing the social contract, your company has much to gain.
Among the benefits of strategic social capital management are: better management of investment resources, planning of long-term actions and determination of limits of responsibility and ownership of the company that each of the partners must have.
In short, social capital is very important and its main functions are to financially support the first activities, to signal the economic strength and value of the company in the market and to define the number of partners or shareholders and their respective commitments to the company.
So, did you like this article? We at BizCapital are here to help business owners who want to see their business take off! Keep an eye on our blog and check out other tips on the world of entrepreneurship.