Authorised capital is the total dollar amount that a company is legally able to raise through the process of issuing shares of the company. This is often done when they company need to raise capital in order to finance some type of addition or change of direction for the company. The company can choose to offer shares up to the dollar amount of authorize capital.
Generally, they don’t do so if they only need a lower amount of money to work with. Should the company find that they need to access more capital than their limit, they can seek to increase it. This is done through a process that requires the approval of the shareholder’s of the company. They have to vote in favor of that increase in order for it to take place.
Those who buy these shares understand there is some risk involved in the process. If the company isn’t successful in their efforts then the shares won’t be worth anything. However, if they make wise business decisions that result in more revenue then they can make some money from such investments.
