It means the mix of share capital and other long-term liabilities. In company, we know that liability of each and every shareholder is limited however how much be the net liability of shareholder is the significant question? It can be decided by selecting best capital structure. In capital structure, we comprise equity share capital, liking share capital, debenture and long term debt. Assume that, our company's capital structure might show 50% equity share capital, 30 percent pref. shares capital and 20 percent debentures. However all companies capital structure might not be equivalent since different business requires different kind of capital structure that will be appropriate according to the requirement of business.
Some of companies wish for to become smart. They slowly reduce equity share capital and rises loan excessively that might be very risky since such company has to pay fixed cost of interest and has to manage reimbursement of loan after certain time. Some mistake in it might be risky for its solvency. Therefore, decision associating to the capital structure is very significant for company.
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