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.