Authorised Share Capital
/ˈɔːθəraɪzd ʃeə ˈkæpɪtəl/
Discover what authorised share capital means, its significance in company structure, and how it impacts share issuance as defined in constitutional documents.
What is Authorised Share Capital?
What is authorised share capital and why does it matter?
Authorised share capital represents the upper limit of shares your company can create. Think of it as your company's share budget.
This figure appears in your company's articles of association and sets the ceiling for how many shares you can distribute to investors, employees, or founders.
The amount doesn't reflect actual money in the bank. Instead, it shows potential ownership stakes available for allocation.
Most companies set this figure higher than their immediate needs to avoid frequent paperwork when issuing new shares.
How does authorised share capital differ from issued share capital?
These terms often cause confusion amongst new founders.
Authorised share capital is your maximum allowance, whilst issued share capital represents shares actually distributed to people.
For example, your company might have authorised share capital of one million shares but only issued 100,000 shares to founders and early investors.
The remaining 900,000 shares remain available for future fundraising rounds or employee share schemes.
Where would I see this?
You'll find authorised share capital listed in your company's articles of association, typically stated as "The company's authorised share capital is £1,000 divided into 1,000 ordinary shares of £1 each." This appears on official documents filed with Companies House and investment agreements when raising funds.
When would you need to increase your authorised share capital?
Companies typically increase their authorised share capital during fundraising rounds.
If you've nearly reached your authorised limit, you'll need to pass a special resolution to increase it before issuing new shares to investors.
This process requires shareholder approval and filing paperwork with the Company Registry.
Planning ahead prevents delays during time-sensitive investment negotiations.
What are the practical implications for entrepreneurs?
Setting your initial authorised share capital requires strategic thinking. Too low, and you'll face administrative burdens increasing it frequently. Too high serves no purpose and may create unnecessary complexity.
Most advisors recommend setting authorised share capital at least ten times your initial issued shares.
This provides flexibility for multiple funding rounds without constant documentation updates.
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