Authorized share capital is a capital with which the company is registered. No limited company can issue the shares more than its authorized share capital. For example M/s XYZ Limited is registered in India. It has declared its authorized share capital 10 crore to registrar of companies. In this case it can not raise any capital more than 10 crore.
Basically, a Limited Company is an independent legal entity. At the time of registration or formation of Private Limited Company or Public Limited Company, has to declare the authorized share capital to the registrar of companies. A Limited Company has to make its own rules and regulation within the legally permitted limits. These rules & regulations are called as memorandum and articles of association.
In memorandum & articles of association of the company, there is a clause of maximum number of the shares which can be issued for subscription. It is called the authorized share capital of the company. It is also called as Registered Capital or Normal Capital. In beginning, a company issues very few shares but more shares can be issued at any time with the consent of shareholders and the controller of capital issue.
Accounting Treatment of Authorized Capital
No accounting entry is prepared for Authorized Capital.
Authorized share capital is shown in liability side of balance sheet but the amount of authorized capital is never added. The idea to show the authorized capital in balance sheet is to declare that the company can issue the shares up to authorized share capital. Therefore, it is very important for all interested parties to know the details of ‘Issued Share Capital’ and ‘Authorized Share Capital’.
- Learn Accounting, Free Accounting Tips
- General Accounting Terms
- General Tips Relating to Indian Income Tax Act
- Free Tally Learning
- General Tips Relating to Sales Tax-VAT