What Does Authorized Capital Mean in Company Law ?

Authorized Capital Mean in Company Law is a basic idea that every entrepreneur investor & corporate secretary must understand. It sets the maximum limit of share capital that a company can issue & it acts as a legal boundary for its fund raising capacity.

Today, In this Article we will Look at Authorized Capital Mean in Company Law on filesure.

What Is Authorized Capital Meaning in Company Law?

The authorized capital also called nominal capital or registered capital is defined under Section 2(8) of the Companies Act 2013. The term shows the highest amount of share capital that a company is allowed to issue as written in its Memorandum of Association MOA. The figure is not the amount that a company has issued or received from shareholders & it is only a limit.

Authorized Share Capital vs Actual Capital

Authorized share capital is a limit.
Paid-up capital can never exceed the authorized capital.
If a company wants to issue more shares than its authorized ceiling, it must increase its authorized capital.

Why Authorized Capital Meaning Is Important for Companies ?

It sets a legal limit on the amount of equity a company can issue
Helps maintain financial flexibility: a company may keep some authorized capital unissued to issue new shares later.
Impacts share capital compliance: any change (increase) requires regulatory filings and shareholder approvals.
Protects existing shareholders by imposing a cap, unless they approve an increase.

When and Why a Company May Choose to Increase Authorized Share Capital ?

A company may decide to raise its authorized capital for several reasons:

To issue new shares for business expansion or fresh fundraising.
To welcome new investors without immediately transferring existing shares.
To ensure flexibility for future capital needs, without having to constantly amend foundational documents.

What is the Legal Procedure to Increase Authorized Capital?

Check MOA and AOA
The MOA must have a capital clause that allows an increase & the AOA must also support this change.
Board Meeting
We see that the board must meet to suggest the increase.
Shareholders Approval
The company must pass an ordinary resolution in a general meeting EGM or AGM.
File Form SH 7
The form must be filed with the Registrar of Companies ROC within 30 days.
Pay Stamp Duty
The company must pay stamp duty based on the increase in authorized capital.
Compliance
The company must also file the updated MOA & AOA with ROC.

Role of the MOA Capital Clause

The capital clause in the Memorandum of Association (MOA) is the formal place where the company’s authorized capital is specified.

This clause states:

The total authorized share capital (in rupees
The nominal (face) value of each share
The number of shares
Key Legal Sections Under Companies Act

Section 2(8): Defines authorized or nominal capital.
Section 61: Permits alteration of authorized share capital by an ordinary resolution.
Section 64: Deals with the return to be filed after alteration.

Type of Share Capital	Definition / Meaning	Relation to Authorized Capital
Authorized Nominal Capital	The highest limit of share capital written in MOA Section 2(8)	It is the legal ceiling
Issued Capital	The part of authorized capital offered to shareholders	Less than or equal to Authorized Capital
Subscribed Capital	The part of issued capital that investors agree to buy	Less than or equal to Issued Capital
Paid Up Capital	The amount actually paid by shareholders	Less than or equal to Authorized Capital

Conclusion

The Authorized Capital Mean in Company Law is not only a legal point & it is a helpful tool. The term shows the maximum share issuing ability in the MOA & it affects how much equity a company can raise now & in the future. The knowledge of its role & the method to increase authorized share capital supports better compliance & smooth planning & long term business growth.

Also Read : Why Every Director in India Must Complete Director KYC on Time

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