Registered Capital (Authorized Share Capital)

Registered Capital Authorized Share Capital Shareholders Corporate Finance Equity
Registered capital, also referred to as authorized share capital, is the maximum amount of share capital that a company is authorized to issue to shareholders as stated in its corporate charter.
On this page

Definition

Registered Capital (also called Authorized Share Capital) is the maximum value of securities that a company can legally issue to shareholders. It represents the upper boundary of capital that the company can raise through equity financing. This amount is stated in the company’s constitutional documents and requires amendment procedures to change.

Key Points:

  • Registered capital is stipulated in the incorporation documents.
  • It sets a legal ceiling on the amount of capital a company can issue.
  • Does not always match the amount of capital actually issued or paid up.

Examples

  1. TechCorp Inc. has registered capital set at $10 million. To date, it has issued shares totaling $6 million. The company has the option to issue additional shares worth up to $4 million without needing to amend its corporate charter.

  2. GreenEnergy Plc. declared registered capital of £5 million upon incorporation. Over time, it issued shares worth £3.5 million. The remaining £1.5 million in registered capital allows for future equity raising without further legal changes.

Frequently Asked Questions (FAQ)

1. How is registered capital different from issued capital?

Registered capital denotes the maximum potential capital that can be issued by a company. Issued capital, on the other hand, refers to the portion of the registered capital that has been actually issued to shareholders.

2. Can companies change their registered capital?

Yes, companies can amend their registered capital through a shareholder vote and by submitting required legal documents to the relevant regulatory authority.

3. Does having high registered capital imply a company’s strong financial health?

Not necessarily. Registered capital simply reflects the potential equity structure of a company. Actual financial health is better assessed through current financial statements, cash flows, and other performance metrics.

4. Is it mandatory for all companies to have registered capital?

Most jurisdictions require companies to define their registered capital during the incorporation process to establish the framework for potential equity issuance.

5. What happens if a company issues shares beyond its registered capital?

Issuing shares beyond the registered capital is illegal and can result in severe penalties, including fines and invalidation of the extra shares issued.

  • Issued Capital: The portion of authorized capital that has been allotted to shareholders.
  • Paid-Up Capital: The amount of money that shareholders have actually paid for their shares.
  • Nominal Capital: Another term for registered or authorized capital.
  • Equity Financing: The process of raising capital through the sale of shares.

Online Resources

  1. Investopedia - Authorized Share Capital
  2. AccountingTools - Authorized Share Capital

Suggested Books for Further Studies

  1. “Corporate Finance: Theory and Practice” by Aswath Damodaran
  2. “Principles of Corporate Finance” by Richard Brealey, Stewart Myers, and Franklin Allen
  3. *“Company Law” *by Alan Dignam and John Lowry
  4. “Accounting for Dummies” by John A. Tracy

Accounting Basics: “Registered Capital” Fundamentals Quiz

### What is another term for registered capital? - [x] Authorized share capital - [ ] Issued share capital - [ ] Paid-up share capital - [ ] Revenue share capital > **Explanation:** Registered capital is also known as authorized share capital, which represents the maximum value of shares a company is legally allowed to issue. ### Can a company issue capital exceeding its registered capital without any action? - [ ] Yes - [x] No - [ ] Sometimes - [ ] Depends on the jurisdiction > **Explanation:** A company cannot issue capital beyond its registered capital without amending its corporate documents to increase the authorized share capital. ### As per common practice, what must be done to change a firm's registered capital? - [ ] Nothing, it changes automatically - [ ] A board decision suffices - [x] Shareholder approval and legal filings - [ ] Management's verbal agreement > **Explanation:** Changing a firm's registered capital usually requires shareholder approval and filing the necessary documents with legal authorities. ### What does registered capital represent for a company? - [ ] The exact amount of capital currently available - [x] The maximum potential capital issuable - [ ] The total revenue earned in a fiscal year - [ ] The minimum capital requirement by law > **Explanation:** Registered capital represents the maximum potential amount of equity a company can issue according to its charter, not the current capital or revenue. ### Does a higher registered capital always equate to a stronger company? - [ ] Yes, absolutely - [x] No, additional financial metrics are needed - [ ] Sometimes, but it depends on the industry - [ ] Higher registered capital always implies stronger financial health > **Explanation:** Higher registered capital does not necessarily equate to stronger financial health. Other financial metrics are required for a comprehensive assessment. ### What happens if a company amends its registered capital? - [ ] It must dissolve and re-incorporate - [ ] There are no effects - [ ] All shares must be repurchased - [x] It can issue more or fewer shares within the new limits > **Explanation:** Amending registered capital allows a company to issue more or fewer shares according to the new authorized share capital limit. ### Is registered capital required by most jurisdictions for company incorporation? - [x] Yes - [ ] No - [ ] It varies greatly, typically not required - [ ] Only for public companies > **Explanation:** Most jurisdictions require companies to declare their registered capital during the incorporation process to set the framework for share issuance. ### Which organizational document typically specifies standard registered capital? - [ ] Employee handbook - [ ] Annual tax return - [x] Articles of incorporation - [ ] Mission statement > **Explanation:** The articles of incorporation or similar founding documents usually specify a company's registered capital. ### Is it possible for registered capital and issued capital to be equal? - [x] Yes - [ ] No - [ ] It is legal but rare - [ ] Only under special circumstances > **Explanation:** Registered capital and issued capital can be equal if a company has issued the total number of shares authorized in its charter. ### What term describes the financial tool used to raise money through issuing shares? - [x] Equity financing - [ ] Debt financing - [ ] Leasing - [ ] Factoring > **Explanation:** Equity financing is the process of raising capital by selling shares of the company, which is related to its registered capital.

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!

Tuesday, August 6, 2024
Registered Check
Registered Book-Keeper
Stock Split January 1, 1
Stockholders' Equity January 1, 1
Unissued Share Capital January 1, 1
Agreed Bid January 1, 1
Allotted Shares January 1, 1
Alteration of Share Capital January 1, 1
Authorized Share Capital January 1, 1
Bonus Issue (Scrip Issue) January 1, 1
Bonus Shares January 1, 1
Called-up Share Capital January 1, 1

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.