What Is Meant By The Term Authorised Share Capital?

When a company issues stock to raise money, the amount of the money is known as share capital.  The amount of share capital may change with time if the stock is issued for public offering. There is a specific limit on the amount of share capital that cannot be exceeded while raising money from public offerings. he amount above which a company cannot issue shares is known as authorised share capital.

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Why 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.

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What Happens Without the Authorised Capital?

- After the Companies (Amendment) Act, 2005, the companies need not have to mention the authorised capital. - 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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What is Issued Capital?

- Issued capital is the total value of the shares offered to sell to investors.  - The par or nominal value of the share capital cannot exceed the value of the authorised capital. - Issued share capital also consists of the paid-up share capital. - Paid-up share capital is the amount that has already been paid to the company’s shareholders, which is always less than the amount of authorised capital.

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Do you want to learn more about Rules Related to Issued Capital

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