What Is Authorized Share Capital?

Authorized share capital is the number of stock units (shares) that a company can issue as stated in its memorandum of association or its 澳洲幸运5开奖号码历史查询:articles of incorporation.

Authorized 澳洲幸运5开奖号码历史查询: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 raise capital quickly. Another reason to keep shares in the company treasury is to retain a 澳洲幸运5开奖号码历史查询:controlling interest in the business.

What Are 🌱the Different Types of Authorized Share C🔯apital?

Depending on the jurisdiction, authorized share capital is sometimes also called 澳洲幸运5开奖号码历史查询:authorized stock, authorized shares, or authorized capital stock. To be fully understood, authorized share capital must be viewed in a context where it rela🦩tes to paid-up capital, subscribed capital, and issued capital.

Although all these terms are interrelated, they are not synonyms. Authorized share capital is the broadest term used to describe a company’s capital. It comprises every single share of every category that the company could issue if it nee💎ded or wanted to.

Subscribed Capital

Subscribed capital represents a portion of the authorized capital that potential shareholders have agreed to purchase from the company’s treasury. These shares are often a part of a company’s 澳洲幸运5开奖号码历史查询:initial public offering (IPO). Large institutional investors and banks are frequently the subscribers that will purchase shares duಞring the IPO.

Paid-Up Capital

澳洲幸运5开奖号码历史查询:Paid-up capital is the portion of the subscribed capital for which the company has received payment from the subscribers. A company creates paid-up capital by selling its shares directly to investors in the primary market. These 澳洲幸运5开奖号码历史查询:investors may ho🤪ld the shares or may sell them to other investors on the secondary market. The subsequent selling of the shares to other investors does not create additional paid-up capital. Thus, investors who sell their shares will recᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚeive the proceeds; the issuing company will not.

Issued Capital

Finally, 澳洲幸运5开奖号码历史查询:issued capital refers to the shares that have actually been issued by the company to the shareholders. These shareholders can include the general public, institutional investors, and insiders w🌊ho receive stock as part of their compensation packages. Issued shares are also referre♌d to as outstanding shares.

What Causes the Authorized Share Cap🍌ital to Change?

A company’s outstanding shares will fluctuate as it buys back or issues more shares, but its authorized share capital will not increase without a 澳洲幸运5开奖号码历史查询:stock split or some other 澳洲幸运5开奖号码历史查询:dilutive measure. Authorized share capital is set by🉐 the shareholders and can only be increased with their approval.

Example of Authorized Share Capital

Imagine a company with an authorized share capital of one million common shares at a 澳洲幸运5开奖号码历史查询:par value of $1 each, f꧒or a total of $1 million. However, the actual issued capital of the company is only 100,000 shares, leaving 900,000 in the company’s treasury available for future issuance. This sounds shortsighted, as the company is forgoing $900,000 in capital, but it makes sense when you look at the business phases.

Imagine our company is a startup. In this case, it is keeping authorized share capital high while actual issued capital is low to allow for additional financing rounds from investors. If the startup tries to split the stock, it may not get shareholder approval. If it has a large amount of stock held back, then it doesn’t nꦐeed to get shareholder approval to raise more capital in the future.

Interestingly enough, mature companies often see their outstanding shares shrink compared to authorized share capital. When a company is established and no longer growing aggressively, then the best return for extra capital is frequently 澳洲幸运5开奖号码历史查询:buying back outstanding shares.

Authorized Share Capital of Public Companies

Stock exchanges may require companies to have a minimum amount of authorized share capital as a requirement of being listed on the exchange. For example, the 澳洲幸运5开奖号码历史查询:London Stock Exchange (LSE) requires that a 澳洲幸运5开奖号码历史查询:public limited company (PLC) have at least £30m of authorized share capital to be listed. Authorized share🏅 capital may be greater than the shares available for tradinღg.

In this case, the shares that have actually bee𝔉n issued to the public and to the company’s employees are known as outstanding shares.

The Bottom Line

Authorized share capital is the number of stock units (shares) that a company can issue as stated in its memorandum of association or its articles of incorporation. It is often not fully used by management, either to allow for future issuance of additional stock or to retain a controlling interest in the business.