Question

What is meant by Authorised Capital?

Hint:

Authorised capital = maximum capital a company is allowed to issue legally.

Answer 1

Authorised capital refers to the maximum amount of share capital that a company is legally permitted to raise by issuing shares, as stated in its Memorandum of Association. It represents the upper limit of capital that the company can call from shareholders. A company cannot issue shares beyond this limit unless it amends its memorandum by following legal procedures. Authorised capital is divided into different classes of shares with specified nominal values. Although a company may not issue all of its authorised capital immediately, it provides flexibility for future expansion. It helps determine the company's overall financial capacity and borrowing power, as lenders often consider authorised capital as an indicator of financial strength.