What Is Meant By The Term Authorised Share Capital?

What is Authorised Share Capital?

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Why was the Authorised Capital Abolished?

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What Happens Without the Authorised Capital?

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What Is Meant By The Term Authorised Share Capital?

What is Authorised Share Capital?

- Every company has imposed a limitation while raising share capital for public offerings, known as authorised share capital.

- In simple language, When the company is allowed to raise a certain amount of capital through a public offering is known as its authorised capital.

Why was the Authorised Capital Abolished?

- Under the Companies Act 2006, authorised share capital was abolished. Due to the following reasons, the authorised capital was abolished:

– The authorised share capital was considered to be the artificial ceiling

– The artificial ceiling could be raised or reduced as per the wishes of the shareholders

– The absence of an appropriate reason for the requirement of a ceiling on issuing a company’s share.

What Happens Without the Authorised Capital?

- After the Companies (Amendment) Act, 2005, the companies need not have to mention the authorised capital.

- After the amendment, shares of a company have no nominal value. The authorised capital and par value are directly related to capital maintenance. It was introduced to restrict the issue of shares at a very low value or discount.

- After the abolishment of authorised capital, there is no prohibition against issuing shares at a low price.

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