Authorized capital: concept, meaning, features

The Authorized capital is the amount initially invested assets (often cash) necessary to start activity of the enterprise. The size is not arbitrary but is determined in accordance with defined rules of jurisdiction. Thanks to the Charter capital the opportunity to shape the tools that are needed for the first steps in commercial activities.

The Value of share capital

Of Course, it is important performs several functions. Principal among them are:

• It ensures the protection of creditors. This implies that the capital gives investors great assurance that they will receive some compensation, even if the enterprise did not succeed,  and will be completely devastated;
• Impact on the positioning in the market. It is for Charter capital experienced people can judge how successful the company is and about what awaits her in the future (although this indicator is not very informative);
• For a developing company it is the initial capital. Without initial capital, no commercial activity is impossible, as without the fixed costs and expenses it will not do;
• Used as a means for limiting the entry of companies to the market. In some cases activities will not be possible if the share capital of the company does not meet the requirements.  All of this is justified by the fact that serious business requires a lot of responsibility.

The Minimum share capital

This capital shall be calculated in accordance with all requirements established by the authorities of the jurisdiction pertaining to regulating. To date, almost all countries set a minimum amount of funds, without which it is impossible to open any company.  For registration of a company will need to undergo procedures that are associated with the collection and submission of documents and writing petitions and other things.

In the authorised capital it is possible to make not only money, but also material values, property rights, and even the securities – this is acceptable.

The Calculations in this case happen with the minimum wage, although sometimes indicated, and the amount of money. For ZAO – 100 minimum wages, OAO – 1000 the minimum wage, the minimum share capital must be greater than 100 minimum wages, municipal unitary enterprise – 1000 the minimum wage and state-owned enterprises must have Charter capital of not less than 5,000 minimum wages. These data concern only Russia.

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Funds, ELN and other non-profit organizations by law can be created without it.

Increase of authorized capital

The Size of the authorized capital, LLC and other commercial organizations may eventually be increased. Without this growth is impossible. This is possible only in the case if you have made previous authorized capital. The decision to increase it is received directly at the General meeting of members of the company or its shareholders.

The Reasons that lead to its increase:

• The need to Finance the growth of the company. In this case, perhaps even funding from third parties;
• The need to provide the staff of the securities;
• The reason for its increase could be a merger with any other company.

Undoubtedly, the growing company must continually increase its share capital and information about it, as a rule, should be available to the public.

Share capital Reduction

There are cases when the company reduce its share capital. The goal here may be different. Here are the highlights:

• To increase the value of the shares. The authorized capital grows and with it grows the number of shares – this leads to their partial depreciation. In other words, the reduction does not give the shares of the shareholders be diluted.
• To optimize the management of registered capital.