Question

What is 'Authorised Capital' versus 'Issued Capital'?

Hint:

Authorised Capital = Maximum capital allowed by law; Issued Capital = Part of it actually offered to investors.

Answer 1

Concept: In company accounts, share capital is classified into different categories based on how much capital is permitted and how much is actually issued. Authorised and issued capital are two fundamental concepts in this classification.
Step 1: Authorised Capital. Authorised Capital (also called Nominal or Registered Capital) is the maximum amount of share capital that a company is legally permitted to issue as stated in its Memorandum of Association. It sets the upper limit for issuing shares.
Step 2: Issued Capital. Issued Capital is the portion of the authorised capital that the company actually offers to the public or investors for subscription. It may be equal to or less than the authorised capital.
Step 3: Key Differences.

• 
  Meaning: Authorised Capital = Maximum permitted capital; Issued Capital = Capital offered to investors.
• 
  Legal limit: Issued capital cannot exceed authorised capital.
• 
  Disclosure: Authorised capital is mentioned in the company’s charter documents, while issued capital appears in financial statements and share records.
• 
  Flexibility: Authorised capital can be increased by legal procedures, and issued capital can vary depending on funding needs.

Conclusion: Authorised capital defines the legal ceiling for raising funds, whereas issued capital represents the actual portion of shares offered to investors.