Finance and Management - 17

In the last blog, we began discussing about the capital stock, in today’s blog, we continue discussing about capital stock and our subject today is Authorized capital.

When a company is looking to infuse some capital it can be done using the company’s equity. Generally companies are authorized to issues equity shares or preference shares in some cases to raise the capital. The Equity capital represents only the residual equity in the company, since the equity shareholders are paid only after all other claims are have been paid. These equity share holders are akin to the real owners of the business and hence they indulge themselves in appointing the company's directors and declaring dividends.

The constitution of the company is governed my it’s MOA (Memorandum of Association) to a major extent and this specifies the number of shares of stocks that may be issued by a company and the par value of each share. This number is called Authorized Capital.

Any increase of Authorized Capital can be done by the approval of the company's shareholders, but this would be a time consuming process and hence, company's generally company obtains an authorization for more shares than it plans to issues initially. This makes it possible to make further issues of share later when funds are needed.

Read in Kannada:
http://somanagement.blogspot.com/2011/08/blog-post_10.html