Authorized Capital


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Related to Authorized Capital: authorized capital stock, Issued capital

Authorized Capital

 

the amount of capital specified in the charter or other agreement governing the establishment of capitalist enterprises, joint-stock companies, and various business associations as necessary to start up operations. The capital is raised through government appropriations, stock sales, and individual contributions (the last being extremely rare today). Authorized stock is also referred to as basic capital and share capital. In some countries (France, Federal Republic of Germany), enterprises and associations can be registered only if the amount of authorized capital conforms to certain legal requirements. In the USA and Great Britain, there are no such requirements.

The amount of authorized capital is much less than the amount of capital obtained through credits, investments, and bonds. Together with reserve capital, authorized capital constitutes the assets of an enterprise. Since the ratio of the authorized capital to the overall volume of economic activity is used in evaluating financial soundness, current high rates of inflation have led capitalist enterprises and banks to regularly increase the authorized capital by placing additional stock on the market.

E. D. ZOLOTARENKO

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