|Authorised/nominal capital vs issued capital|
|(Note: this page is currently being re-written in view of recent law changes. Some of the information here may no longer be current. UKcorporator's incorporation process however remains perfectly valid and effectual and complies with current law.)|
The authorised capital (sometimes called 'nominal capital' or 'registered capital') is an arbitrary limit, chosen by the company from time to time, on the number and nominal value of shares which the company may issue. The memorandum of association of a limited liability company with share capital (such as UKcorporator's standard configuration companies) must state the amount of the authorised capital with which the company proposes to be registered - section 2(5)(a) of the Companies Act 1985. This provision in the memorandum of association may, however, subsequently be altered by the members/shareholders voting to do so at a general member/shareholder meeting - section 121 of the Companies Act 1985. It is generally desirable however to stipulate a large amount of authorised capital at the outset so as to avoid the need for such an alteration should the company wish to raise share capital exceeding the amount of its authorised capital. A figure of, say, £10million pounds, should be more than ample for most small businesses. The full number of shares in the authorised capital need not be issued at the outset or at all. However, any issue of shares exceeding the authorised capital would be invalid and ineffective. (Shares are said to be 'allotted' to a particular shareholder when the company binds itself in contract to issue the shares to that shareholder, e.g. when a shareholder completes an application for shares and the company accepts the application. The shares are said to be 'issued' to the shareholder when the shareholder is given title to the shares, usually upon payment of the par value plus any applicable premium.)
In the case of UKcorporator's standard 'one director' company formation configuration, the sole shareholder will be issued one ordinary share in return for payment to the company of the sum of £1. In the case of UKcorporator's standard 'two director' company configuration, each of the two shareholders will be issued one ordinary share in return for each of them paying the company £1.