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:

Think of Authorised Capital as the size of an empty bucket. The company can fill it with "Issued Capital" up to that level, but it cannot overflow the bucket without legally increasing the bucket's size (altering the Memorandum of Association).

Answer 1

The Correct Option is C

Concept: Share capital is categorized into different types based on its stage in the issuance process. Authorised capital, also known as Nominal or Registered capital, is the legal limit established during the company's incorporation.

Step 1: Define Authorised Capital
Authorised capital is the maximum amount of share capital that a company is legally allowed to issue to its shareholders as per its Memorandum of Association. It represents the "ceiling" of the company's fundraising capacity through equity.

Step 2: Differentiate from other types of capital listed in the options.
To avoid confusion, it's helpful to identify what the other options represent:
• Option (a) refers to Issued Capital, which is the portion of authorised capital actually offered to the public.
• Option (b) refers to Subscribed Capital, representing the shares the public has agreed to take up.
• Option (d) refers to Paid-up Capital, which is the actual money received from shareholders. The definition of Nominal/Authorised capital, option (c) is the correct choice as it highlights the legal authorization limit.