Authorized capital: concept, meaning, features

Authorized capital is the amount of initially invested assets (most often cash) required to start an enterprise. Its size is not arbitrary, it is established in accordance with certain norms of jurisdiction. Thanks to the authorized capital, it becomes possible to create the means that are necessary for the first steps in commercial activity.

The value of the share capital

Of course, it is important and performs several functions at once. Here are the main ones:

• It provides protection to creditors. This means that this capital gives investors an excellent guarantee that they will receive some compensation, even if the enterprise does not succeed and will be completely ruined;
• Affects the positioning in the market. It is under the authorized capital that experienced people judge how successful the company is and what awaits it in the future (although this indicator is not too informative);
• For a developing company it is the starting capital. Without an initial capital, no commercial activity is possible, since without constant expenses and spending it can not be dispensed with;
• It is used as a means to restrict companies from entering the market. In some cases, activities will not be possible if the company's authorized capital does not meet the requirements. All this is justified by the fact that serious business requires great responsibility.

The minimum amount of the authorized capital

Such capital must be calculated in accordance with all the requirements that are set by the jurisdictional bodies relating to the regulatory. To date, virtually all countries have established a minimum amount of funds, without which no company can be opened. To register the company you will need to undergo procedures that involve collecting and submitting documents and writing applications and others.

In the authorized capital it is possible to deposit not only money, but also material values, property rights, and even securities - this is entirely permissible.

Calculations in this case occur with the help of SMIC, although sometimes the amount is indicated in money. For the CJSC it is 100 MROT, OJSC - 1000 MROT, the minimum authorized capital of the LLC must be more than 100 minimum wages, municipal unitary enterprises - 1000 MROT, and state enterprises must have an authorized capital of at least 5000 minimum wages. This data only applies to Russia.

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

Increase the authorized capital

The amount of the authorized capital of CJSC, LLC and other commercial organizations may be increased in time. Without this, the growth of the company is impossible. This is possible only if the previous authorized capital was contributed. The decision to increase it is taken directly at the general meeting of the company's members or its shareholders.

The reasons that lead to its increase:

• Need to finance the growth of the company. In this case, even financing from third parties is possible;
• Need to provide employees with securities;
• The reason for its increase may be a merger with some other company.

Undoubtedly, a developing company must constantly increase its authorized capital, and information about it, as a rule, should be available to the public.

Reduction of the share capital

There are cases when companies reduce their authorized capital. Goals here can be different. Here are the most basic:

• To increase the value of shares. Authorized capital is growing, and with it the number of shares is growing - this leads to their partial depreciation. In other words, its reduction does not allow the share of shareholders to erode.
• To optimize the management of authorized capital.