Definition:
Authorized-share capital is the maximum number of shares of stock that a corporation is legally authorized to issue. It’s specified in the company’s articles of incorporation.
Key points about authorized-share capital:
- Legal limit: It sets the legal limit on the number of shares a company can issue.
- Issued shares: Only a portion of the authorized-share capital may be issued to investors.
- Unissued shares: The remaining shares are considered unissued and can be issued in the future.
- Capital structure: Authorized-share capital is a key component of a company’s capital structure.
Why is authorized-share capital important?
- Legal compliance: Companies must comply with the authorized-share capital specified in their articles of incorporation.
- Flexibility: It allows companies to raise additional capital by issuing more shares in the future if needed.
- Investor protection: Authorized-share capital can provide some protection to investors by limiting the number of shares that can be issued.
In essence, authorized-share capital is the maximum number of shares a corporation can issue, and it’s a crucial component of a company’s capital structure.
