Wondering about the benefits of increasing authorisation. Here’s a comprehensive guide featuring everything you need to know.
Authorized share capital is the maximum amount of capital that a company is authorized to issue to its shareholders. Increasing authorized share capital is a common practice among companies, and it can have several benefits. In this blog post, we will discuss the benefits of increasing authorized share capital in detail.
Advantages of Increasing Authorized Share Capital
- Facilitates Future Fundraising
Increasing authorized share capital can facilitate future fundraising for the company. When a company wants to raise funds through equity, it needs to issue new shares to its investors. If the authorized share capital is low, the company may not be able to issue enough shares to meet the demand of investors. By increasing authorized share capital, the company can issue more shares, which can help it raise more funds in the future.
- Enhances Company’s Credibility
Increasing authorized share capital can enhance the company’s credibility in the eyes of investors and lenders. A higher authorized share capital indicates that the company has the potential to grow and expand in the future. This can make the company more attractive to investors and lenders, who may be more willing to invest or lend money to the company.
- Provides Flexibility in Capital Structure
Increasing authorized share capital provides flexibility in the company’s capital structure. The company can issue new shares to raise funds without diluting the ownership of existing shareholders. This can help the company maintain its control and ownership structure while raising funds for growth and expansion.
- Increases Market Value
Increasing authorized share capital can increase the market value of the company’s shares. When a company announces an increase in authorized share capital, it sends a positive signal to the market that the company is planning to grow and expand in the future. This can increase the demand for the company’s shares, which can lead to an increase in the market value of the shares.
- Simplifies Mergers and Acquisitions
Increasing authorized share capital can simplify mergers and acquisitions for the company. When a company wants to acquire another company, it needs to issue new shares to the shareholders of the acquired company. If the authorized share capital is low, the company may not be able to issue enough shares to complete the acquisition. By increasing authorized share capital, the company can issue more shares, which can simplify the process of mergers and acquisitions.
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FAQs
1. What is authorized share capital?
Authorized share capital is the maximum amount of capital that a company is authorized to issue to its shareholders.
2. Why do companies increase authorized share capital?
Companies increase authorized share capital to facilitate future fundraising, enhance the company's credibility, provide flexibility in capital structure, increase market value, and simplify mergers and acquisitions.
3. Does increasing authorized share capital dilute the ownership of existing shareholders?
No, increasing authorized share capital does not dilute the ownership of existing shareholders. A company can issue new shares to raise funds without diluting the ownership of existing shareholders.
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