Authorised Share Capital
Authorised Share Capital
Authorised share capital is the maximum amount of share capital that a company is legally authorized to issue. It is a key element of a company’s constitution and is used to determine the company’s maximum borrowing capacity and the number of shares that can be issued.
Key Points:
- Authorised share capital: Maximum amount of share capital a company is authorized to issue.
- Ordinary shares: Shares of common stock.
- Preference shares: Shares that have priority in terms of dividend payments or asset distribution.
- Par value: The face value of a share.
- Issued share capital: The amount of share capital that has actually been issued to shareholders.
- Issued and subscribed share capital: The amount of share capital that has been issued and paid for by shareholders.
Formula:
Authorised Share Capital = Number of Shares x Par Value
Example:
A company has an authorised share capital of 10,000 shares of $10 each. This means that the company is authorized to issue a total of 10,000 shares, each worth $10.
Importance:
- Investment limits: Authorised share capital limits the amount of investment that can be made in a company.
- Credit worthiness: High authorised share capital can make a company more creditworthy, as it indicates a company’s ability to raise capital.
- Flexibility: Authorised share capital can be increased or decreased through a company’s articles of association.
- Transparency: Authorised share capital is a public company record, providing transparency to investors.
Additional Notes:
- The authorised share capital must be sufficient to meet the company’s objectives and growth plans.
- The actual issued share capital may be less than the authorised share capital.
- The authorised share capital is not necessarily the same as the company’s issued share capital.
- The authorised share capital can be amended through a company’s articles of association.