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Sources of Finance

Authorised, Issued and Called Up Share Capital

The memorandum of association of a limited company states the amount of authorised or nominal share capital. It also says how the share capital is divided into individual shares of a set amount, such as 10p a share.

There are no upper or lower limits on authorised share capital for private limited companies, but a public limited company (plc) must have an authorised share capital of at least £50,000.

A company can increase its authorised share capital by passing an ordinary resolution at a general meeting. Equally, a company can decrease its authorised share capital by passing an ordinary resolution to cancel some shares - this is called 'diminution of capital'.

Issued share capital comprises that part of the authorised share capital that has actually been issued, released or sold by the company. Tesco plc has authorised share capital of 9.2 billion shares at a total nominal value of £460 million but its issued share capital comprises just over 6.9 billion shares with nominal value of £347 million (see table below).

The difference between the authorised and issued share capital represents the number and value of shares that the company can issue should it need to raise further capital. Tesco, therefore, could issue around 2.3 billion shares to take its issued share capital up to its current maximum authorised share capital of 9.2 billion shares. The issued share capital cannot exceed the authorised share capital although companies can increase their authorised share capital if they need to, as we have already seen.

Of the minimum £50,000 authorised share capital that a public limited company must have, at least a quarter of the nominal value of each share and any premium must be paid before it can start trading or borrowing money.

Share capital is called up once it has been issued and the company is asking for payment. The following table for Tesco plc helps to illustrate the process for a public limited company:

Source: Tesco Plc Annual Report and Financial Statements 2002, Page 34

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