What is authorised (or nominal) capital?
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A company's authored or nominal capital must be stated in its memorandum of
association. It is the maximum amount of share capital the company can issue
(unless it goes through a procedure to increase the figure). authorised capital
is one of the items that must be included in the memorandum (CA 1985, sec2(5)).
It must be stated as a sum of money divided into shares of a fixed amount, e.g.
'The company's share capital is £50,000 divided into 50,000 shares of £1 each.'
(The authorised capital provisions in the Act are a hangover from the days
when stamp duty was paid on registration of a company's memorandum. The higher
the capital, the higher was the duty payable. The practice of setting up companies
with a capital of £100 was a reflection of the fact that this was the amount
at which higher stamp duty started to apply. No stamp duty is now payable on
authorised capital, but the statutory provisions are unchanged and many people
still set up £100 companies. There is now little point in restricting authorised
capital. The figure should be at least sufficient to meet the company's foreseeable
share capital requirements.)
A private company can have an authorised capital of any amount. A public company
must have an authored capital of at least £50,000 (CA 1985, sec117). In either
case the capital can be divided into shares of any value (though £1 is by far
the commonest amount). The shares need not all be the same amount, e.g. the
capital could be £100,000 divided into 50,000 shares of £1 and 100,000 shares
of 50 pence. In the case of a private company the capital need not be denominated
in sterling, but may be in any currency such as $US.
The authored capital is simply an upper limit to the amount of shares the company
can issue. There is no requirement for the company to issue all its authored
capital and the figure has no implication for the liability of the members.
E.g. a company may have an authorised capital of £250,000 divided into 250,000
shares of £1 each, but only ever issue, say, two shares. The shareholders' liability
is to pay the company for the two shares issued.
If a company wants to issue shares beyond its authored capital, the figure
must be increased. Unless the company has some special restriction in its articles
this can be done by an ordinary resolution in general meeting: CA 1985, sec121;
Table A, art. 32.
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