Authorised share capital is the maximum number of shares a company is legally permitted to issue as stated in its constitutional documents.
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.
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.
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.
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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