During the formation of a company, the person or people forming the same decide whether the members’ liability will be limited by shares. The Memorandum of Association contain:
The amount of share capital that the company will have
The division of the share capital into shares of a fixed amount
When a company is registered, the members must agree to take some or all of the shares. The names of the people who have agreed to hold shares and the respective number of shares they hold should be revealed in the Memorandum of Association. The people who have agreed to have the shares are known as subscribers.
Authorized Capital:
The company’s authorized or nominal capital is that portion which is mentioned in the Memorandum of Association. There can be an increase in the authorized share capital of a company by passing an ordinary resolution. However, a copy of the resolution notice must reach the Companies House within 15 days of being passed. Similarly, there can also be a decrease in the authorized share capital of a company by passing an ordinary resolution. Even in this case, the notice of cancellation should reach the Companies House within 15 days of being passed.
Allotment of Shares:
The process by which people become members of a company is known as ‘allotment’. After the incorporation of a company, the subscribers agree to take the shares and then they are allotted to each member. However more people can be allotted shares. The Directors cannot allot shares without the authority of the existing shareholders. The Directors are given the authority either in the Articles of Association of the company or by a resolution passed at a general meeting of the company.
