Posted in Finance, Accounting and Economics Terms, Total Reads: 392
Definition: Authorized Share Capital
It is the maximum amount of capital that a publicly traded company is authorized to raise, as stated in its memorandum of association (articles of incorporation) by issuing shares to its shareholders. It can be changed later by shareholder’s vote. It is usually not fully utilized to leave some room for future issuance of additional stock in case the company is in need of capital. Another reason may be to keep a controlling stake of the company. Authorized share capital is also called Nominal capital and Registered capital.
Authorized share capital is the maximum amount of capital that a company can raise through specified number of stock units having a fixed face value. It is kept generally higher than the amount required by the company for future needs. The shares that are actually issued to the public and employees are called outstanding shares and the amount generated through issued shares is called issued capital. Paid up capital is the amount of capital received by the company through the shareholders who have completely paid for their shares. Authorized share capital may be more than issued capital which may be more than the paid up capital. As the company may not issue all the shares available, and the issued shares may be given to promoters and employers, which will not be counted in paid up capital. Paid up capital may be equal to the authorized share capital, but never more than it.
For example: If your authorized capital is Rs 1 lakh, the maximum you can raise through issuing shares is Rs 1 lakh. These can be shares of Rs 10 each with 10000 units, or Rs 100 each with 1000 units of shares or Rs 1000 each with 100 units of shares. If we assume the face value of each share to be Rs 10 and issue only 5000 shares then the issued capital will be Rs 50000 and the number of outstanding shares will be 5000 shares, and if the shareholders have completely paid for it then the paid up capital will also be Rs. 50000.