Every company, regardless of its organizational structure or size, will have a specific share capital. Today in this article we have covered information on an Authorized Share Capital of a Company, the Purpose of Authorized Share Capital, features of Authorized Share Capital and “How do startups obtain authorized capital?””
The majority of today’s startups are bootstrapped and cash-strapped. As a result, they are unable to pay large sums to increase their share capital authorized during incorporation with the MCA. Furthermore, the remainder of the capital invested is in the form of an unsecured loan or a share premium.
Furthermore, this reduces the need for them to raise share capital during the early stages of their company. However, as the company grows and requires debt or equity, the share capital limit is increased in order to issue more shares. As a result, most startups start with the minimum required share capital for private companies and gradually raise the limit as they require debt or equity funding.
There are several methods for raising authorized share capital:
The primary difference between authorized capital and paid up capital is that authorized capital is the total number of shares a company can issue to its shareholders, whereas paid-up capital is the total number of shares it has actually issued to its shareholders.
At the time of company formation, there is no limit on authorized share capital. So it’s up to you how much you need to keep a company’s authorized capital. However, if an increase in authorized share capital is required, it must be done after passing a resolution in the company’s general meeting and then after modifying the company’s MOA and AOA.
Yes, it is possible for a company to increase authorized capital; however, they must first discuss it in a meeting and obtain shareholder approval, after that they need to change MOA and AOA of a company. This procedure must be followed when increasing authorized share capital.
