The authorized capital is the amount of initially invested assets (most often cash) needed to start the activity of the enterprise. Its size is not arbitrary, but is set in accordance with certain rules of jurisdiction. Thanks to the authorized capital, it becomes possible to form the funds that are needed for the first steps in commercial activity.
The value of the authorized capital
Of course, it is important and performs several functions at once. Here are the main ones:
- It provides lender protection. This implies that this capital gives investors an excellent guarantee that they will receive some compensation even if the company does not succeed and is completely ruined;
- affects market positioning. It is by 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 initial capital. No commercial activity is possible without seed capital, since it cannot be avoided without fixed costs and expenses;
- It is used as a means to restrict companies from entering the market. In some cases, the activity will not be possible if the authorized capital of the company does not meet the requirements. All this is justified by the fact that a serious business requires great responsibility.
Minimum authorized capital
Such capital should be calculated in accordance with all requirements established by the regulatory authorities. To date, almost all countries have a minimum amount of funds, without which it is impossible to open any company. To register a company, you will need to go through procedures that are related to the collection and provision of documents and the writing of applications and others.
It is possible to add not only money, but also material values, property rights, and even securities to the authorized capital - this is quite acceptable.
Payments in this case occur using the minimum wage, although sometimes the amount in money is also indicated. For a CJSC - this is 100 minimum wages, OJSC - 1000 minimum wages, the minimum authorized capital of an LLC must be more than 100 minimum wages, municipal unitary enterprises - 1000 minimum wages, and state-owned enterprises must have a registered capital of at least 5000 minimum wages. These data apply only to Russia.
Foundations, ANOs and other non-profit organizations can be created by law without it.
Increase the authorized capital
The size of the authorized capital of CJSC, LLC and other commercial organizations may be increased over time. Without this, the growth of the company is impossible. This is only possible if a previous share capital has been contributed. The decision to increase it is taken directly at the general meeting of company members or its shareholders.
The reasons that lead to its increase:
- the need to finance company growth. In this case, even financing from third parties is possible;
- the need to provide employees with securities;
- the reason for its increase may be a merger with any other company.
Undoubtedly, a developing company should constantly increase its authorized capital, and information about it, as a rule, should be available to the public.
Decrease in share capital
There are cases when companies reduce their registered capital. The goals here may be different. Here are the most basic ones:
- to increase the value of stocks. The authorized capital is growing, and with it the number of shares is growing - this leads to their partial depreciation. In other words, its decrease does not allow shareholders to erode.
- to optimize share capital management.