Authorized Capital

What is Authorised Capital?

Authorised Capital, also known as authorized stock or nominal capital, is the maximum amount of share capital that a company is legally permitted to issue as stated in its corporate charter or Articles of Association. It sets the upper limit on the value of shares that can be issued to shareholders. The authorised capital is expressed in a monetary amount and is divided into shares of a certain denomination. This figure represents the potential equity that a company can leverage to raise funds for its operations, expansion, and other financial needs.

Related Terms

Issued Capital: The portion of authorised capital that has been issued or sold to shareholders. It reflects the actual amount of capital that has been mobilized by the company.

Paid-up Capital: The part of issued capital for which shareholders have made payment to the company. It represents the actual funds received by the company from the issuance of its shares.

Subscribed Capital: This refers to the portion of the issued capital that investors have committed to buying but may not yet have paid for in full.

Par Value: The nominal value of a share as specified in the company's charter. It is the minimum price at which shares can be issued and does not necessarily reflect their market value.

Share Premium: Extra money paid by shareholders over and above the par value of the shares. This amount is stored in a separate account and can be used for specific purposes.

Bonus Shares: Additional shares given to existing shareholders without any cost, usually sourced from the company's reserves or profit earnings, which increases the share capital but not the net assets.

Rights Issue: An offer to current shareholders allowing them to purchase additional shares directly from the company at a discount, usually to raise additional capital.

Example of Authorised Capital

Let's consider a hypothetical example to illustrate authorised capital and its related concepts:

Imagine a company, XYZ Tech, which is planning to expand its operations. The company's corporate charter states that it has an authorised capital of $10 million, divided into 1 million shares with a par value of $10 each. This means XYZ Tech is allowed to issue up to 1 million shares to raise a maximum of $10 million in equity finance.