Suppose If any company have $10m total valueation and issue the shares than when company have total $12m value but shares are selling at more than that value does it affect anything or is it illegal or is it even acceptable?
It is perfectly normal, it could happen, refer below:
FY End = 2017-03-31 Industry Segment = Plastics Share Capital (Cr.) = 22.9 Book Value (Cr.) = 393.64 Asset (Cr.) = 478.03 Gross Revenue (Cr.) = 524.42 M Cap, adjusted (Cr.) = 2271.49 M Cap, on FY End (Cr.) = 1732.23 Shares Outstanding = 45777600 Diluted EPS = 17.52
Here the market capitalization is more than assets (as declared in balance sheet), it is normal. In fact if it is less, you have to ask why
Many companies are worth more than the value of their assets.
Imagine, if you will, the company "Super widgets inc." which has assets of 10 $1 widgets and has issued 1 share comprising 100% of the company. What is the price of that share?
1) The price cannot be less than the total value of the assets ($10) since if it were, for example $5, I could buy the company for $5 and then sell all of the assets for $10 and make $5 profit for no risk. This isn't entirely true because I forgot to mention that the company borrowed $5 (has $5 of liabilities) to buy the $10 worth of widgets. this means that the minimum the company is worth is $5; the $10 worth of widgets - $5 of liabilities. This valuation is otherwise known as the (shareholders') equity = assets - liabilities.
"actual" value (share price): $5
2) Not many companies just store assets; they were set up to do something. Super Widgets' activity takes 10 widgets and turns them into 1 superwidget. A superwidget sells for $20 on average with a $5 standard deviation but we will assume that they sell for $20 for now. When Super Widgets takes the 10 widgets, turns them into a superwidget and sells it they will get $20 in return. So the assets will be worth $20 tomorrow when it sells a superwidget therefore the company should be worth $20 - $5 = $15 because we know that it will sell the $10 worth of widgets as a $20 superwidget:
"actual" value: $15
3) Most companies are "going concerns" - i.e. they don't just make one item and stop, they keep producing and selling items. There is a total demand for 3 superwidgets at $20 (sd still $5) in my area and widgets still cost $1 each so, once the first superwidget sells, the $20 revenue can be used to buy 20 widgets and these widgets turned into 2 more $20 superwidgets. This means that in the future Super widgets can make 3 widgets each of which can be sold for $20 giving a future income to the company of $60 and a profit of $55. The value of the assets hasn't changed.
Assets: $10 "actual" value: $55
so now you can see why the shares will trade at a premium to the $10 asset valuation and the $5 equity valuation right now (before any superwidgets are made). This logic follows for most real companies whose value is related to what people expect the net present value of all of the company's future cash flows (i.e. the difference between incoming cash and outgoing cash). Different people will value the future cash flows differently; they may think that $20 is too expensive (or too cheap) for superwidgets for example, and they will value the total company differently. The stock market price of the shares in a company (and the value of the company as a whole calculated by stock price * number of stocks) is the current expected (average) valuation given to the uncertain future cash flows of the company by all of the participants in the stock market.
to answer your questions directly:
a) Does it affect anything? - No it is normal
b) Is it legal? - very, in fact it is not only normal but the best way to do things.
c) Is it acceptable? - yes; it is simply pricing in expected company activity. It would be strange and unacceptable if the stock market value wasn't higher!