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Authorised Share Capital

Ankit0

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.

FAQs

  1. What is authorized capital?

    Authorized capital refers to the maximum amount of share capital that a company is legally allowed to issue to shareholders, as stated in its corporate charter.

  2. What is an example of authorized capital?

    If a companyโ€™s authorized capital is $1 million, it can issue shares worth up to $1 million. However, the company may choose to issue shares worth only $500,000, leaving $500,000 available for future issuance.

  3. What is the difference between authorized capital and paid-up capital?

    Authorized capital is the maximum share capital a company can issue, while paid-up capital is the amount shareholders have actually paid for the shares issued by the company.

  4. How is authorized share capital calculated?

    Authorized share capital is calculated by multiplying the number of authorized shares by the nominal (or face) value of each share. For example, if a company authorizes 1 million shares with a nominal value of $1 each, its authorized capital is $1 million.

Disclaimer

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