What is ‘authorized capital’
Authorized capital stock the number of shares of shares (shares) that the company may issue as specified in the articles of incorporation or bylaws. Size of share capital is often not fully used by management in order to leave room for future issuance of additional stock in case the company needs to quickly increase their capital. Another reason to keep shares in the company Treasury to keep the controlling stake in the business.
Breaking down the ‘authorized capital’
Depending on the jurisdiction, registered capital, sometimes also referred to as the “authorised Fund”, “pledged shares” and “authorized capital”. In order to fully understand the authorized share capital should be considered in the context where it applies to paid up capital, authorized capital and share capital. Although these terms are interrelated they are not synonymous.
The breakdown of capital of the company
“Authorized capital” is a broad term used to describe the capital of the company. It includes every fraction of each category that the company may issue, if it is needed or wanted. Further, the share capital represents part of the share capital that potential shareholders have agreed to purchase from the Treasury of the company. Paid-up capital is the part of the share capital, for which the company received payment from subscribers. Finally, the issued capital is the shares that actually were issued by the company to the shareholders.
For example, a company may have authorized capital in the amount of 1 million ordinary shares with a nominal value of $1 each, totaling $ 1 million. However, the actual issued capital can be only 100,000 shares, leaving 900 000 in the Treasury of the company for the future release.
In the case of a startup, the amount of authorized capital can be very high, while the actual Charter capital is low, to allow funding from potential investors.
The authorised share capital of public companies
The stock exchange can require companies to have minimum Charter capital requirement to be listed on the stock exchange. For example, the London stock exchange requires that a joint stock company, have at least £50,000 of share capital must be listed. The amount of the share capital may be greater than the shares available for trading. In this case, the shares that were released to the public and employees of the company known as “shares”.
For example, Coca-Cola Ko. has a share capital in the amount of 11.2 billion shares with par value of 25 cents per share. However, this is only 4.33 billion shares.