What are Authorised and Issued share capital and how we deal with them?

Authorised share capital is the total number of equity share a company can issue and Issued share capital is the one they issued.
My questions are:
1.Based on what they determine the number of Authorised share is been determined?
2.Which number we use for capital the Issued one or the Authorised one?
3.The premium value of the share, how do we deal with that amount? Can we add it to the capital or treated as surplus?
4.How do we treat the unissued shares?

I will appreciate if you could answer them in detail please

Regards
What you are saying is that the number of shares authorised s not based on any valuation, it is just the number fixed by the board. In this case what is this further issue? I remember reading an IPO ad in which they say they are issuing X number of shares out of their authorised Y number of share.

(I was in an impression that they value of total authorised share * PAR value will give you the value of the company.)

correct me if i am wrong

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3 Responses to “What are Authorised and Issued share capital and how we deal with them?”

  1. JKRB says:

    1. Based on what they determine the number of Authorized share is been determined?
    The board of directors determines the amount. It’s usually way above the amount actually issued in case they need to issue more in the future to raise capital.

    2. Which number we use for capital the Issued one or the Authorized one?
    Use the par value of the shares that are actually issued.

    3. The premium value of the share, how do we deal with that amount? Can we add it to the capital or treated as surplus?
    Both the par value and the premium are part of total paid-in capital, but they are split into to different accounts. The premium would go into an account titled something like "Share Premium" or "Paid-in Capital in Excess of Par Value".

    4. How do we treat the unissued shares?
    You don’t do anything with them. It’s for information use only.

  2. RT says:

    Yes – you are wrong.
    The value of the company is determined by the market (i.e.price paid/share x # of issued shares).
    Again, authorized shares are shares that the company is holding for future purposes (e.g. stock options, warrants, future issuances, etc.)

  3. Jo W says:

    Shares may be authorised, but only count towards a company’s value if they are issued/paid.

    The requirement to have an authorised share capital was abolished from 1.10.2009 when the Companies Act 2006 came into full effect.

    Any company registered from that date will have no restriction on the number of shares it can issue, unless a limit is set in the company’s articles.

    Companies registered before that date will still be subject to the authorised capital figure in their memorandum and articles until they are amended.

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