Authorized Share Capital more commonly known as authorized capital is basically the maximum amount of share capital that a company can issue to shareholders. This amount varies from company to company and is subject to change but only with the approval of shareholders. Let’s just assume that a company’s authorized capital is Rupees one lakh then it automatically means that you can issue shares of up to Rupees one lakh. But since this authorized capital is subject to change it can be increased and decreased as and when required. Let’s say that a company’s authorized capital is Rupees 1 lakh but an investor wants to invest Rupees one Crore, in such scenario company can increase its authorized capital to one Crore. Discussed below is authorized share capital for company registration.
If we talk about the UK, authorized capital is banned there. However talking about India there is no such ban but it is mandatory for a Private Limited Company to have an authorized capital of at least Rupees one lakh. Anything more than that will increase the stamp duty which you have to pay at the time of incorporation of your company. But with the amendment in Companies Act 2015, there is no minimum requirement of paid up capital to start a Private Limited Company. Whereas for a Public limited company the minimum authorized capital is Rupees five lakhs.
However, Ministry of Corporate affairs (MCA) has laid down certain guidelines when it comes to authorized capital. Certain words can lead to change in the authorized capital of a company such as;
- Rupees five lakhs for using words like Hindustan, Bharat, India within the name of the company.
- Rupees ten lakhs for words like Enterprise, Products, Business and Manufacturing within the name of the company.
- Rupees fifty lakhs for words like International, Global, Continental, Universal, Intercontinental, Asiatic, Asian within the name of the company.
- Rupees fifty lakhs for words like Bharat, Hindustan, India as the first word of the name of the company.
- Rupees one crore for using words like International, Global, Universal, Continental, intercontinental, Asiatic, Asia as the first word of the name of the company and words like Udhyog and Industry anywhere in the name of the company.
- Rupees five crores for using word Corporation anywhere in the name of the company.
There is a certain procedure to change the authorized capital of a company. A minimum fee of Rupees five thousand is to be paid to MCA if the authorized capital is the minimum amount of Rupees one lakh. As the amount of authorized capital increases the amount of fee required to be paid to MCA also increases.
- For each lakh of additional share Capital, Rupees one lakh to five lakhs; Charges per lakh of authorized Capital is rupees four thousand.
- For each lakh of additional share Capital, Rupees five lakhs to fifty lakhs; Charges per lakh of authorized is rupees three thousand.
- For each lakh of additional share Capital, Rupees fifty lakhs to one crore; Charges per lakh of authorized Capital is rupees one thousand.
- For each lakh of additional share Capital, Above Rupees one crore; Charges per lakh of authorized Capital is Rupees seven hundred and fifty.
But if we talk about startup entrepreneurs, they tend to keep a minimal amount of authorized capital of Rupees one lakh in order to avoid any extra spending. However big established companies tend to keep a high amount of authorized capital so as to avoid repeated interference of government organization in their work again and again.
People often get confused between authorized share capital and issued share capital but you need to understand that they are two different things. Issued share capital is the amount of capital which is funded by company’s shareholders and it can never be more than authorized share capital.
Now that you have a clear understanding of what authorized share capital is and how it works for company registration, go and select a name for your company keeping in mind the above-stated facts. Think wisely and Play smartly!