We often hear about capital, capital markets or the capitalist societies in which we live, but you may be wondering what this term is and why it is so important. We will tell you.
It is one of the four factors of production along with labor, land and technology. All four are resources that a company can use to generate value and in the case of capital, you can also use it to make money.
What constitutes capital?
In the case of a business, capital is made up of means and durable goods. For example, in a laundry, the dryers and washing machines would be part of the capital that the company needs to offer its services. In other words, the machines and work tools in a company are part of its capital.
For example, in a laundry, the washing machines and dryers are part of the company's capital, since they are used to offer the service.
Of course, capital also includes financial resources , such as money.
To help you understand better, in the past, when setting up a limited liability company, it was necessary to provide an initial share capital of at least 30,000 euros (nowadays, 1 euro is enough). This share capital can be monetary (money) or made up of the assets that the company will use to operate (computers, vans, machines, etc.).
In the case of mortgages and loans, this definition changes slightly. In a mortgage, the principal is made up of the loan money, which is what is amortized and on which interest is paid. The amortization table is what allows us to see this relationship between the principal and the interest.
Within a mortgage, the capital is made up of the loan money, which is what is amortized and on which interest is paid.
What is capital looking for?
The purpose of capital is to make a profit of some kind, which can be profits in a business or interest when it comes to investing money.
In short, what capital always seeks is to generate value , something that usually translates into gaining growth and revaluation or ultimately earning more money.
What capital always seeks is to generate value
What types of capital exist
By now you've probably realized that there are several types of capital. In fact, there are a lot more of them than you might think. Here are the different ways to classify capital.
According to the owner
Depending on who owns the property, a distinction can be made between:
• Public capital if ownership is state-owned, such as government buildings.
• Private capital , when it involves the assets of private agents, such as companies or individuals.
According to its constitution
Here a distinction is made between:
• Physical or tangible capital, which would be the capital that you can see and touch, such as machines, computers, buildings...
• Intangible capital, which includes everything from brand value to intellectual property rights, patents, goodwill, etc.
According to the deadline
As with investments, the term also allows capital to be classified according to whether it is:
• Short-term capital is when it is expected to generate returns within a period of less than one year. This type of capital is considered a current asset from an accounting point of view.
• Long-term capital when the horizon for obtaining profit is greater than one year. An example would be the capital destined to build a house or a new factory that will take years to be operational. In accounting, this would be a non-current asset.
According to its function
Finally, we can distinguish between different types of capital depending on their function, that is, the specific use that will be given to them:
• Share capital, which is the contributions made by partners to the capital of a company. These contributions are made up of shares in the company, which are what later allow profits to be obtained from the economic activity.
• Financial capital, which is the sum of a person's assets at market prices.
• Human capital , which would be the economic value of your professional skills and knowledge. In other words, how much your work is worth and how much you can charge for it.
• Venture capital, which is the name given to investment in the capital of companies not listed on the stock exchange. This is precisely why companies that are dedicated to this segment are called venture capital funds or companies.
• Free float , which refers to the percentage of a company's shares that are publicly traded or can be easily purchased by retail investors.
Taxes on capital
The objective of capital is to increase its value and, like everything that generates value and income, it is subject to taxes.
In the case of capital, taxes will have to be paid through the income tax declaration as an individual and in the Corporate Tax, in the case of companies.
As a private investor, you will have to pay taxes on the profits you make from your investments. These profits are normally taxed under personal income tax within savings income as income from movable capital or as a capital gain or loss.
The percentage to be paid will depend on the total profit you have achieved. These are the savings rates that apply:
• Between 0 and 6,000 euros - 19%.
• Between 6,000.01 euros and 50,000 euros - 21%.
• Between 50,000.01 euros and 200,000 euros - 23%.
• Between 200,000.01 euros and 300,000 euros - 27%
• More than 300,000.01 euros - 28%.
Capital investment can also generate the right to deductions, as is the case with pension plans or the amortized capital of a mortgage. And it is still possible to deduct the amount of the house from the personal income tax, although only in certain cases.
