Most people are not aware of the difference between authorized share capital and issued share capital. In order to reflect your company shareholding accurately and legally, it is vital that you understand the difference between these two.
Authorized shares are the amount of shares that can be issued by a company as per the Memorandum of Incorporation (“MOI”). This capacity is set at incorporation or via Cor15.2 (changes to the MOI) and is the limit of shares that can be issued by directors or shareholders.
Provided that you have alloted shares to a minimum of 1 shareholder, the balance of your authorized shares can remain as unissued capital. These shares do not hold any ownership, rights or voting powers when they are unissued.
Issued capital is the total amount of shares that have been allotted from the company’s authorized shares. These shares will hold the rights, ownership and rules as defined by the class (type) of shares as set out by the MOI.
Companies with a standard MOI will predominantly issue no par value shares (“NPV”). These shares;
- are not assigned a fixed price to purchase
- entitle the shareholder to vote at general meetings
- do not fix the payment of dividends this will depend on
- the profits made by the company and,
- the percentage ownership of the company
If all the authorized shares have been issued, the company must increase this by doing a change to the MOI before alloting new shares. The change will need to be ratified (approved) via a special resolution of the directors or shareholders.
Authorized capital is a convenient addition to the Company’s Act as it minimizes the admin around allotting new shares. Provided that it is used properly, a company no longer needs to undergo a lengthy redistribution of its shares in order to reflect its new shareholding.