what is authorised share capital
Authorised share capital (also called authorised share capital , registered capital or nominal capital) is the maximum amount of share capital a company is legally allowed to issue to shareholders, as specified in its founding documents (like the Memorandum/Articles of Association or charter).
Quick Scoop: One-Line Idea
Authorised share capital = the legal ceiling on how many shares (or what total face-value of shares) a company can issue, even if it actually issues less in practice.
Simple Example
Imagine a company is set up with:
- Authorised share capital: ₹10,00,000 divided into 1,00,000 shares of ₹10 each.
- Initially issued to investors: 30,000 shares of ₹10 = ₹3,00,000 issued share capital.
Here:
- Authorised share capital = ₹10,00,000 (upper limit).
- Issued share capital = ₹3,00,000 (actually given to shareholders).
- Unissued capacity = ₹7,00,000 (room to issue more later without changing the documents).
Key Features (Mini Sections)
1. Where it is written
- Defined in the company’s founding documents (Memorandum of Association / Articles of Incorporation / charter).
- Approved by founders and usually by shareholders or board at incorporation.
2. Why it exists
- Acts as a legal cap so directors cannot issue unlimited new shares and dilute existing shareholders without approval.
- Gives flexibility: companies often authorise more than they issue so they can raise money quickly later or grant ESOPs/stock options without redoing the structure each time.
3. Can it change?
- Yes, companies can usually increase or decrease authorised share capital, but only by following legal procedures and getting shareholder approval (like passing a special resolution and filing forms with the registrar/authority, depending on the country).
- Some jurisdictions (e.g., UK under Companies Act 2006, Australia since 2001) have abolished the requirement to state a fixed authorised capital at all.
Related Terms (Quick Contrast)
| Term | Meaning (Short) |
|---|---|
| Authorised share capital | Maximum value/number of shares the company is legally allowed to issue, as per its constitutional documents. | [3][9][7][1]
| Issued share capital | Portion of authorised capital that has actually been issued to shareholders. | [5][7][1]
| Subscribed capital | Part of authorised capital that investors have agreed to buy (e.g., in an IPO). | [5]
| Paid-up capital | Subscribed capital for which investors have fully paid the company. | [8][5]
Why investors and founders care (2020s–now context)
- For founders:
- Leaving headroom in authorised capital makes it easier to raise future funding rounds or grant employee stock without a big legal overhaul each time.
- For investors:
- Authorised capital shows how much the company could still issue in future, which signals potential dilution risk if many new shares are later created.
A common modern startup setup is to incorporate with a relatively high authorised share capital (or high authorised share count) but only issue a portion initially, keeping the rest in reserve for future fundraising and ESOP pools.
Information gathered from public forums or data available on the internet and portrayed here.