What is Share Capital?
It is the capital of the company contributed or to be contributed by shareholders. The authorised share capital (also called the nominal capital) is the maximum capital the company has available to to issue. The amount of share capital stated in the Memorandum of Association is the company’s ‘authorised’ capital, for example, the share capital of our ready made companies is 1000 divided into 1000 shares of 1 each. Company formation is usually carried out with authorized share capital that is greater than the amount it needs to issue. After issuing a certain number of shares initially the company will therefore have a number of unissued shares that it can reserve for future issue of shares. Issued capital is the value of the shares issued to shareholders. The amount of issued capital cannot exceed the amount of the authorised capital.
The authorised share capital of a company is the amount of share capital the company has available to issue to its members. Our companies are incorporated with a share capital of £1000 divided into 1000 shares of £1. The company therefore has 1000 shares which it may issue to members before it needs to increase its share capital. The issued share capital is the amount of share capital that has been issued to its members. If a company has two members and each member takes one share, the issued share capital of the company is £2.
The share capital of a company is more known as the authorized share capital – a statutory requirement which sets out the total value of the shares that may be sold and distributed. In many jurisdictions there is no minimum authorized capital requirement, and the chosen capital is not affected by fees.
When people form a company, they decide whether to limit the members’ liability by shares. The memorandum of association (a document required in the company’s formation) must state: • the amount of share capital the company will have; and • the division of the share capital into shares of a fixed amount. On registration of the company at Companies House, members of the company (the ‘shareholders’) must agree to take some, or all, of the shares. The memorandum of association must show the names of the people who have agreed to take shares and the number of shares each will take. These people are the subscribers. 2. What is authorised capital? A limited company’s authorised share capital is the amount of capital with which it starts its life (but which it can alter subsequently) and which the memorandum of association states. A company’s authorised share capital is not the same as its issued capital. 3. Can a company alter its authorised share capital? Unless its articles of association
It is traditional for a private United Kingdom Limited company to be incorporated with an authorised share capital of 100 ordinary shares of £1 each of which only 2 are issued. This provides for the normal start up situation of 2 people starting out business with one share each giving them joint control.
