March 26, 2024

# Authorized Share Capital

Authorized share capital is the maximum amount of share capital a company is legally permitted to issue to shareholders. It’s determined by the company’s constitutional documents and can be increased with shareholder approval, setting the upper limit for potential equity financing.

## Authorized Share Capital Meaning

Authorized share capital represents the maximum value of shares a company can issue, as stated in its legal documents. It’s the equity limit a company can raise from shareholders, and altering this limit requires shareholder consent, reflecting its potential for equity-based funding.

Authorized share capital is a company’s maximum allowable share issuance value, defined in its founding documents. This figure represents the total worth of shares it can legally distribute to investors. It sets the upper limit on how much capital a company can generate through equity.

Changing authorized share capital requires changing the company’s constitution, usually with shareholder approval. This limit is key for investors, signaling the firm’s equity fundraising capacity and affecting shareholder ownership dilution.

For example, if a company’s authorized share capital is Rs.1 million, it can issue shares up to that value. If it decides to raise more capital, it must increase this limit, usually through a shareholder vote, before issuing additional shares beyond the Rs.1 million mark.

## Authorized Share Capital example

For example, XYZ Pvt Ltd has an authorized share capital of Rs. 20 lakhs and has issued shares worth Rs. 15 lakhs. This means the company is within its legal limit for share issuance. The Rs. 20 lakhs mark represents the maximum share capital (Authorized share capital) XYZ Pvt Ltd can issue.

## Authorized Share Capital formula

Authorized Share Capital = Number of Authorized Shares × Par Value per Share

The formula to calculate authorized share capital is to multiply the number of authorized shares by the par value per share. This calculation gives you the nominal capital, combining the quantity of shares a company can issue and their individual value.

For Example – Authorized Share Capital (1000) = Number of Authorized Shares (100) × Par Value per Share (10)

## Difference Between Authorized Capital And Paid Up Capital

The main difference between authorized capital and paid up capital is that Authorized capital is the maximum amount a company can legally raise through share sales, while paid up capital is the actual amount received from selling these shares.

## Authorized Share Capital Meaning  – Quick Summary

• Authorized share capital is the highest amount of stock that a company can legally issue, as stated in its corporate charter. This includes all shares that the company is permitted to offer or issue.
• The formula for calculating authorized share capital is: multiply the number of authorized shares by their par value. This gives the nominal capital, indicating the total potential value of shares a company can issue.
• The main difference between authorized and paid up capital is that authorized capital is the legal maximum a company can raise through share sales, while paid up capital is the actual amount received from these sales.

To understand the topic and get more information, please read the related stock market articles below.

## Authorized Share Capital – FAQs

### What Is Authorized Share Capital?

Authorized share capital is the maximum stock a company can issue legally, as defined in its corporate charter. It covers all the shares the company can offer or issue.

### What is the formula for authorized share capital?

To calculate authorized share capital, multiply the number of authorized shares by their par value per share. This gives the nominal capital, combining the share quantity a company can issue with their value.

Authorized Share Capital = Number of Authorized Shares × Par Value per Share

### What is the difference between nominal share capital and Authorized share capital?

Nominal share capital refers to the face value of a company’s shares, while authorized share capital is the maximum value of shares a company can legally issue, as stated in its charter.

### What is an example of authorized capital?

For instance, XYZ Pvt Ltd has an authorized capital of Rs. 20 lakhs. If it issues shares totaling Rs. 15 lakhs, it means the company remains within its authorized capital limit.

### What is the difference between authorized shares and issued shares?

The main difference between authorized and issued shares is that authorized shares are the maximum number a company can issue as per its charter, while issued shares are those actually distributed to shareholders.

### How many Authorized shares will be issued?

Companies can authorize any number of shares without restrictions. They use these shares during public offerings, like in an Initial Public Offering (IPO), to sell the company’s equity.

### What is the maximum Authorized share capital?

The minimum authorized capital should be at least 1 lakh, with no maximum limit. Any changes after incorporation and share issuance are decided by shareholders in a general meeting.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:

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