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LSDefine
Simple English definitions for legal terms
authorized capital
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A quick definition of authorized capital:
Authorized capital is the maximum amount of money that a company is allowed to raise by selling its shares. It is also known as nominal capital. This is the amount of money that the company can raise if it needs to, but it doesn't mean that it has to raise that much. It is just the maximum limit. The company can choose to raise less than the authorized capital if it wants to.
A more thorough explanation:
Authorized capital is the maximum amount of money that a company is allowed to raise by selling its shares to investors. This is also known as nominal capital. It is the amount of money that a company can legally issue in shares to the public.
- A company has authorized capital of $1 million. This means that it can issue shares up to a total value of $1 million to investors.
- Another company has authorized capital of $10 million. It can issue shares up to a total value of $10 million to investors.
These examples illustrate how authorized capital sets a limit on the amount of money a company can raise by selling its shares. It is important for companies to have authorized capital to ensure that they do not issue more shares than they are legally allowed to.