Question

Nominal/Authorised Share Capital is

• A. that part of the share capital which is issued by the company.
• B. the amount of share capital which is actually applied for by the prospective shareholders.
• C. the maximum amount of share capital which a company is authorised to issue.
• D. the amount actually paid by the shareholders.

Hint:

Authorised Capital: \[ \text{Maximum capital a company can issue} \]

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Every company limited by shares must state the amount of capital with which it is registered in its Memorandum of Association (MoA).
This specific amount is known as the "Authorised Capital," "Nominal Capital," or "Registered Capital."
It represents the legal ceiling on the capital-raising power of the company.
Step 2: Detailed Explanation:
The Authorised Capital is the maximum amount of share capital that a company is legally permitted to issue to its shareholders throughout its existence (unless increased through a legal procedure).
The company registers this amount with the Registrar of Companies (ROC) and pays stamp duty based on this value.
It is called "Nominal" because it does not necessarily represent the actual funds available to the company; it is merely the registered limit.
Let's clarify the other related terms in the options:
Issued Capital (Option A): This is the part of the authorised capital which is actually offered to the public for subscription. A company usually does not issue all its authorised capital at once; it keeps some for the future.
Subscribed Capital (Option B): This is the portion of the issued capital for which the public has submitted applications and which has been allotted by the company.
Paid-up Capital (Option D): This is the actual amount of money received by the company from the shareholders against the calls made.
The hierarchy is always:
\[ \text{Authorised Capital} \geq \text{Issued Capital} \geq \text{Subscribed Capital} \geq \text{Called-up Capital} \geq \text{Paid-up Capital} \]
If a company wishes to issue shares beyond the authorised limit, it must pass a resolution and amend its Memorandum of Association.
Step 3: Final Answer:
Authorised capital is the maximum limit of capital defined in the MoA.
Correct Answer is (C).