Wondering what is the difference between authorised capital and issued share capital of your company? Take a while to nail down the top distinctions with Chern & Co!
Some company directors wonder “what is the difference between authorised and issued capital and what numbers do I have to use?” Let’s nail it down below!
A company is an artificial body whose management is done via directors who stick to the Constitution of a company formerly known as the Memorandum of Association (MoA). The term Constitution replaced Memorandum of Association (MoA) under the Companies Act 2014.
Memorandum of Association consists of the articles of association. The firm’s MoA lists principles of the internal management system of a company including terms of share capital management and dividends distribution. There are several types of share capital including issued and authorised that we are considering in this post.
Definition of Authorised and Issued Share Capital
Issued share capital is what everyone understands and it’s very straightforward. To be more precise, this is the monetary value of the shares of stock a company offers for sale to investors. Issued share capital size is 100 figures, each figure is equal to 1% or 1 share.
Issued share capital is deposited at the incorporation stage and cannot be lower than 100 Eur.
However, many business owners struggle to understand what is Authorised Share Capital. They get particularly scared when seeing numbers such as 1,000,000 euro!
Well, don’t worry. The authorised capital is a number that shows how many new shares the company can issue without any special resolutions having to amend its constitution. But where do the numbers come from? Originally, authorised share capital figures were 10,000, then the number has grown to 100,000 shares. It is still used to date by many company formation agents. The new norm of authorised capital is 1,000,000 shares.
With a growing demand for investment and companies considering fundraising, having permission to issue 1,000,000 shares makes it convenient. Apart from the ability to issue new shares, there are no risks or liabilities for the owners. It’s just a number for the future in case the company needs to issue new shares. It’s not required. Companies can choose to have 0 Authorised Capital meaning they can’t issue any new shares without an additional process, having to amend the Company Constitution and alter Authorised Share Capital by a resolution.
Issued vs Authorised Capital: Comparison Table
As we’re towards a better understanding of the difference between an issued and authorised share capital, let’s overview key points that define the distinction between the two in the comparison table.
|Сomparison Criteria||Authorised Capital||Share Capital|
|Meaning||Implies the maximum ceiling of share capital that can be reached by a company||A part of an authorised capital offered to the general public|
|Declaration Date||When a company brings Initial Public Offering (IPO)||Prior to the incorporation|
|Stamp Duty Paid*||n/a||Stamp duty is paid when selling or transferring issued shares for a total value above €1,000|
|Disclosure requirement||Needs to be disclosed in Constitution upon company incorporation and in annual returns||Needs to be disclosed in Constitution upon company incorporation and in annual returns|
|Factors that impact the amount of capital||Both present and future needs of an enterprise||Only present needs of an enterprise|
|The mechanism of changing||Requires alterations in the company’s Constitution. It should be performed following a strict procedure appointed by the Companies Act and approved by the majority of shareholders.||No alteration in the Constitution is required.|
*According to the Revenue of Ireland, stamp duty is “a tax on certain instruments (written documents) that is chargeable on instruments that transfer land and buildings situated in Ireland”.
Below, we answer some of the most popular questions our clients have about authorised share capital.
Is it Possible to “Customise” the Numbers of Authorised Capital?
Yes, the numbers of 100 issued shares and 1,000,000 authorised shares are used by default for convenience purposes. However, if you need any other numbers, just let us know.
In addition to using default numbers and default Constitution, companies may choose to have a custom Constitution with limiting or additional provisions amending rules in the Companies Act 2015 as long as it’s not breaking the legislation.
Can You Change the Number of Authorised Share Capital?
Yes, the number of authorised share capital can be changed if business owners are 100% sure they wouldn’t need to issue shares. However, it’s okay if you decide to leave such figures. It carries no legal prosecution, doesn’t charge an additional fee and doesn’t have an impact on anything except the ability to issue shares in the future.
Final Thoughts – The Difference Between Issued and Authorised Share Capital
Both issued and authorised capitals are the types of share capital an enterprise has. In the case of company registration in Ireland, share capital is regulated in the Constitution. The major differences between the two lie in declamation date, default numbers, disclosure requirement, impact on the company registration fee, the procedure of making alterations, and factors that impact the amount of capital. The default amount for each type of capital share is not strictly set and can be customised upon request.
Apply to our best company formation experts for a private consultation on what numbers to use in your particular case! Book your free catch-up now!