Authorised capital

From 1.10.2009
The requirement to have an authorised share capital is abolished from 1.10.2009 when the Companies Act 2006 finally came into full effect. Any company registered from that date will have no restriction on the number of shares it can issue, unless a limit is set in the company's articles. Companies registered before that date will still be subject to the authorised capital figure in their memorandum and articles until they are amended. Paragraph 42 of Schedule 2 to the Companies Act 2006 (Commencement No 8, Transitional Provisions and Savings) Order 2008 provides that, from 1 October 2009, any provision in a company's memorandum of association in force immediately before 1 October 2009 relating to the amount of the company's authorised share capital will be treated as a provision in the company's articles of association setting the maximum amount of shares that the company may issue. The company may amend or revoke such "provision" by ordinary resolution. Company Law Solutions can provide ths service.

Under the Companies Act 1985
Until 1.10.2009, a company's authorised or nominal capital had to be stated in its memorandum of association. It was the maximum amount of share capital the company could issue (unless it went through a procedure to increase the figure). Authorised capital had to 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 1985 Act were 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.)

For advice on the procedure of changing the memorandum and/or articles of association in order to take advantage of no longer having the restriction of an authorised share capital please visit our Company Law Solutions webpage.