What is Over-capitalization in Business studies?

The Over-capitalization in Business Studies

Over-capitalization refers to a state where the amount of shares issued by the company is more than the required amount. In this case, the earning of the company is not able to sell its securities at par-value. The presence of over capitalization brings an unhappy situation in the company. The state of over capital is not desirable because:

  • In this case the shares of the company see below par value and this shows a state of poor creditworthiness. It becomes difficult to raise further capital.
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  • The employees and the labourers may not receive adequate salary.
  • It gives birth to window dressing because it encourages payment of “unearned dividend”.
  • The general public suffers from poor quality product.
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