Authorized Share Capital Definition
Authorized share capital definition refers to the number of shares that a corporation may issue as stated in its articles of incorporation. 3 min read
Authorized share capital definition refers to the number of shares that a corporation may issue as stated in its articles of incorporation. In most cases, authorized share capital is not fully used. The variance between the authorized shares and issued shares allows for future issuances, in case the corporation wishes to raise additional capital quickly.
Authorized Share Capital
Authorized share capital describes the maximum value of shares that a corporation may legally issue to stockholders. The articles of incorporation or the memorandum of association will specify the exact amount. However, this figure may be changed at any time bearing stockholders' approval.
What Are the Types of Authorized Share Capital?
There are three types of authorized share capital:
- Uncalled capital: Funds remaining unpaid by stockholders for the shares that they have purchased.
- Paid up capital: Funds received from stockholders in exchange for the shares.
- Issued capital: The par value of the shares of stock that have been issued.
What Are the Other Names of Authorized Share Capital?
Authorized share capital may also be referred to as the following:
- Registered capital.
- Nominal share capital.
- Nominal capital.
- Authorized stock.
- Authorized capital.
Authorized capital is legally the most capital a corporation may carry in the form of shares of stock.
Where Can We See How Much Authorized Share Capital a Company May Have?
The articles of incorporation or the memorandum of association dictate exactly how much authorized shares of capital the corporation may have.
What Is the Difference Between Authorized Capital and Outstanding Shares?
Outstanding shares or paid-up capital is the amount of capital that the corporation has issued and has received monies from selling shares.
The most capital that a corporation may raise through the issuance of stock is referred to as the authorized capital. This maximum capital amount is registered with the registrar of the corporation and addressed in the articles of incorporation.
Why Do Companies Have Authorized Share Capital?
Authorized share capital is the absolute amount in which the corporation may raise capital from the stockholders and they may not go beyond this limit. Consequently, the corporation will register an amount that exceeds their current need for financing in order to leave a cushion for future demand.
Why Is the Authorized Capital Not Fully Used by the Management?
Rarely is the entire authorized capital fully utilized by the corporation. The unissued shares remain as a buffer in case that the corporation needs to raise additional capital. Remember, as additional shares are issued, the ownership of the corporation will become more and more diluted. Therefore, as new shares are issued the current shareholders may potentially lose control over the business.
Can the Authorized Capital Be Increased?
Shareholders may approve the issuance of additional authorized capital at any time. In order to do so, a fee must be paid to the registrar of the corporation.
Who Is Responsible for the Registration of Companies?
The body responsible for the registration of companies is the registrar of companies.
What Is Subscribed Capital?
Subscribed capital refers to the moment when a business prepares to "go public" by issuing stock for the first time. During this time frame, investors may submit an application expressing their interest in participating. Subscribed share capital is the monetary value of all the shares of stock in which investors have communicated an interest in.
What Is Issued Capital?
Issued capital refers to the amount of capital that the corporation has raised from the pool of subscribed capital. These are shares that have been issued to the subscribers, and therefore now stockholders.
What Is Called-up Capital?
Called-up capital refers to the shares issued to stockholders under the agreement that the shares will be paid for in installments or at a later date.
What Is Paid-up Capital?
Paid-up capital refers to the amount of capital that has been received stockholders from the pool of called-up capital. Conversely, authorized share capital is the absolute maximum number of shares of stock that a corporation is allowed to issue.
Where Is the Authorized Number of Shares Specified?
Usually, the corporation's charter or articles of incorporation will specify the number of authorized shares. However, this amount may increase or decrease based on the procedures identified in the charter.
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