Also know as authorised share capital or nominal capital, the authorised capital of a company is the maximum amount of share capital that a company is legally permitted to issue to its shareholders. The nominal value of the authorised share capital is stated in the company's memorandum of association. It is generally best to nominate a high value for the authorised share capital at the time of formation to avoid the need to officially change it at some later stage.
The authorised share capital sets a limit on the amount of money a company can raise through the sale of shares in the company. If a company sells too many shares, exceeding the maximum value allowed in its memorandum of association, then the shares exceeding the authorised capital will be deemed to be invalid and ineffective.
It should be noted that the full amount of the authorised capital need not be used: it represents a maximum limit, there is no minimum limit, so only a portion, or none at all, of the authorised capital need be issued as shares.