Authorized Capital vs Issued Capital: Difference and Comparison

Authorized Capital refers to the maximum number of shares that a company may issue. It is the total shares of the company that may or may not be issued. The issued capital is the share capital offered for sale by the company to the general public. It is the share capital that the Shareholders own.

Authorized capital is the amount of share capital with which a company identifies itself with the registrar of companies in the memorandum of association. It is, therefore, the maximum amount of capital that can be shared in the future. It is also a nominal capital since it is not the actual amount raised by a company.

On the other hand, the issued capital is a fraction of the authorized capital indicated in the memorandum as a share in the form of cash or any other form of asset. A company does not share its whole portion of shares to the public, therefore, the part of authorized capital that is shared is what is called issued capital.

Authorized Capital vs Issued Capital
/10

Finance Quiz

Test your knowledge about topics related to finance

1 / 10

Which is not a cash activity listed on the cash flow statement?

2 / 10

What is the full form of "LLC"?

3 / 10

What is the purpose of financial ratios?

4 / 10

What is a portfolio in finance?

5 / 10

The appreciation in the value of security or asset is called as:

6 / 10

What is a 401(k) plan?

7 / 10

What is the stock market?

8 / 10

What is a financial advisor?

9 / 10

What is the yield curve?

10 / 10

What is a balance sheet?

Your score is

0%

Key Takeaways

  1. Authorized capital is the maximum value of shares a company can legally issue, while issued capital is the value of shares issued to shareholders.
  2. Authorized capital sets an upper limit for raising capital, whereas issued capital reflects the company’s current capital structure.
  3. Companies can increase authorized capital with shareholder approval, but issued capital can only increase by issuing additional shares.

Comparison Table

Parameters of ComparisonAuthorized CapitalIssued Capital
MeaningAmount of capital raised from the public by issuing sharesFraction of authorized capital shared with the public
Based onPresent and future needs of a companyPresent needs of a company
Registration feesBasis of registration feesNot a basis for registration fees
Memorandum of associationTo make any changes, MoA has to be alteredTo make any changes, MoA does not have to be altered.
DisclosureMust be disclosed in the memorandum of associationDoes not have to be disclosed in the MoA

What is Authorised Capital?

It is the maximum amount of capital that is raised by a company from the public by issuing them shares. It is a form of maximum interest that a company acquires by offering shares to the public.

This capital is divided into shares with which the shareholders determine its amount. It is the capital that a company is allowed to raise and not more than that unless the capital clause is altered as per the company’s act of 2013.

It is a registered capital and sets a limit for the maximum capital that can be raised by a company and it is a nominal capital for it is not the actual capital that a company raises. It is divided into different share values depending on the portion of the shareholders.

In making changes to the authorized capital, a legal procedure is followed, and relevant authorities do approval. Therefore, the amount of authorized capital dictated in the memorandum of association is what is followed until changes are requested.

A company’s shareholders fix it, and it is not subscribed to and the time the company is being incorporated. It is not fully authorized to the public so additional capital (profit) can be raised in the future.

What is Issued Capital?

It is a fraction of the authorized capital that is shared with the public from time to time as a subscription. It can be settled in cash or any other form of asset, depending on how it is stated in the memorandum of association of the companies.

A company does not offer its entire share of the authorized capital. Only part of it is shared with the shareholders and investors as a subscription. Therefore, that part of authorized capital that is shared with the public is what is called issued capital.

For it is not a must for a company to share its authorized capital at a go, the company raises additional capital (issued capital) whenever there is any need for additional funding (fraction of authorized capital). The amount of issued capital cannot exceed the amount of authorized capital.

Issued capital includes shares allocated to the; general public, signatories to the memorandum of association, shares termed as bonuses, and vendors for consideration other than cash. Shares offered to the public but not subscribed by the public are not included in the issued capital.

Main Differences Between Authorized Capital and Issued Capital

  1. Authorized capital refers to the face value (amount started in the share certificate) of the shares that a company is allowed to issue by its memorandum of association, whereas a company raises issued capital by issuing shares to the public (profit).
  2. The amount of stamp duty paid is based on the authorized capital that is shared, while issued capital does not form the baseline for stamp duty calculation.
  3. The authorized capital is mandatory to be disclosed in the memorandum of the association during the incorporation of the company, conversely, there is no disclosure requirement at the time of incorporation with issued capital.
  4. The registration fees that a company pays to the government are based on the authorized capital, while on the other hand, the registration fees are not based on the issued capital.
  5. The decision based on the authorized capital to be shared caters to the present and future needs of the company, while only the present needs are put under consideration during the issuing of the issued capital.
  6. Authorized capital must be disclosed in the memorandum of the association, while issued capital does not have to be disclosed in the memorandum of association for it is only but a fraction of the authorized capital.

Last Updated : 14 October, 2023

dot 1
One request?

I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️

Leave a Comment

Your email address will not be published. Required fields are marked *

Want to save this article for later? Click the heart in the bottom right corner to save to your own articles box!