Authorised Share Capital

Reviewed by Anjaneyulu | Updated on Oct 05, 2020


Authorised share capital is the number of stock units (shares) that a company may issue, as set out in its association memorandum or incorporation papers. Management also does not make full use of authorised share capital to leave space for potential issuance of additional stock if the company needs to collect capital quickly. Another reason to hold company treasury shares is to maintain a controlling interest in the company.

Understanding Authorised Share Capital

Authorised share capital is often referred to as "authorised stock" or "authorised capital stock" depending on the jurisdiction. To be fully understood, authorised share capital must be interpreted in a way where it relates to paid-up capital, subscribed capital, and issued capital. Although these words are all interrelated, they are not synonyms.

"Authorised share capital" is the widest term used to describe the capital of an enterprise. It contains every single portion of every category that the organisation might issue if it required or wanted to.


If XYZ Pvt Ltd has an authorised capital Rs.20 lakhs and shares issued to shareholders up to an amount of Rs.15 lakhs, it means that XYZ Pvt Ltd has issued shares that are not above the maximum limit of the company's authorised capital. It also has the right to issue more shares amounting to Rs.5 lakhs in future without increasing the authorised share capital.

However, if XYZ Pvt Ltd has issued shares in the amount of Rs.25 lakhs to shareholders with the same Rs 20 lakhs of allowed money, this means that the company has issued shares in excess of the permissible limit and is therefore not permitted by law. In order to do so, the process of increasing authorised share capital must have been carried out in the first place, and then the issue of shares to shareholders can be done.

Related Terms

  • Inflation Accounting

    Inflation accounting is a unique method used to weigh on the published statistics of multinational firms in the effects of soaring or plummeting prices of products in some areas of the world.   Read more

  • Revaluation Reserve

    Revaluation fund is the accounting term utilised when a business establishes a line item on the balance sheet for the purpose of maintaining a contingency account connected to other assets.   Read more

  • Consolidate

    Consolidate (or consolidating) is to merge two or more entities, assets, liabilities, and other financial items into one.   Read more

  • Operating Revenue

    Operating revenue refers to the revenue generated by a company from its primary activities.   Read more

  • Escalator Clause

    An escalator clause is also known as an escalation clause, where the provision allows for an automatic increase in the wages or prices.   Read more

  • Agency Problem

    The agency problem is a scenario of a conflict of interest which is inherent in all relations wherein one party is anticipated to operate in the best interests of another party.   Read more

Recent Terms

  • Amortisation

    Amortisation is an accounting strategy used to regularly reduce a loan's book value or an intangible asset's book value over a given period of time.   Read more

  • Rationalisation

    The reorganisation of a firm with the view of enhancing the efficiency of the operation is referred to as the rationalisation.   Read more

  • Profit Centre

    A profit centre refers to a branch, unit, or division of a company which directly adds or which normally adds to the bottom-line or profits of the company as a whole.   Read more