Authorized Capital: Determining the Capital Capacity of a Company

Authorized capital refers to the amount specified in the capital clause of a company’s Memorandum of Association. It represents the maximum value of shares that a company is legally permitted to issue to its shareholders. The authorized capital determines the capital-raising capacity of the company within the limits defined in its capital clause. If a company intends to raise more capital beyond the authorized capital, the capital clause must be amended by the members through a special resolution passed at a general meeting. Increasing the authorized capital may be necessary when issuing new shares or injecting additional capital into the company.

An increase in authorized share capital is a significant financial decision for a company. It involves expanding the maximum value of shares that the company can issue to its shareholders. This expansion provides the company with greater financial flexibility for future growth, investments, and business expansion. Shareholders typically need to approve this increase, ensuring transparency and alignment with the company’s strategic goals. Once approved and formalized, the increased authorized share capital empowers the company to secure additional capital when needed, making it a pivotal step in the evolution and financial strength of the business.

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