Question

The amount of share capital which a company is authorised to issue by its Memorandum of Association is known as:

• A. Nominal capital
• B. Issued capital
• C. Reserve capital
• D. Subscribed capital

Hint:

Remember the hierarchy: Authorised (Nominal/Registered) Capital \(\ge\) Issued Capital \(\ge\) Subscribed Capital \(\ge\) Called-up Capital \(\ge\) Paid-up Capital. Reserve Capital is a distinct concept related to uncalled capital.

Answer 1

The Correct Option is A

The correct answer is: Nominal capital

In corporate finance and accounting, the term "nominal capital" refers to the amount of share capital that a company is authorized to issue by its Memorandum of Association. This is the maximum amount of capital a company can raise by issuing shares, and it represents the total nominal value of all the shares that a company is legally permitted to issue to shareholders. It is essential to distinguish nominal capital from other types of capital:

• Issued capital: The portion of nominal capital that has been actually issued to shareholders.
• Reserve capital: A part of the subscribed capital that the company has decided not to call up, except in the event of winding up.
• Subscribed capital: The part of the capital for which investors have shown interest and agreed to buy.

Thus, the nominal capital sets the upper limit on the amount of shares that a company can issue, enabling its capacity for raising funds through share distribution.