When a company is incorporated, founders make decisions about capital and constitutional documents that are easy to overlook. They rarely matter on day one, but they shape how smoothly the company can issue shares to investors and employees later.
Authorized vs paid-up capital
Authorized capital is the maximum share capital the company is allowed to issue, as stated in its Memorandum of Association. Paid-up capital is the value of shares actually issued and paid for. A company can only issue new shares within its authorized capital, so before a funding round it often needs to increase the limit by a shareholder resolution and a filing with the Registrar, which carries a fee based on the increase.
Share classes
Most early-stage companies start with only equity shares. Investors commonly subscribe to compulsorily convertible preference shares (CCPS), which convert into equity later and can carry negotiated rights. If the authorized capital covers only equity shares, it may need to be reclassified to include preference shares before the round can close.
Founders should also decide early how much equity to keep aside for an employee stock option pool. Setting a pool before the first round makes the cap table clearer and avoids renegotiating dilution at the last minute.
MOA and AOA: what investors read first
The Memorandum of Association (MOA) records the company's name, registered state, objects and capital. The Articles of Association (AOA) set out how the company is governed: how shares are transferred, how directors are appointed, how meetings run and what decisions need special approval.
In a funding round, investors usually require the AOA to be amended so that it reflects the shareholders' agreement. Typical additions include transfer restrictions, rights of first refusal, tag-along and drag-along rights, investor board seats and reserved matters that need investor consent.
- Check that the objects clause covers what the business actually does.
- Keep a clean record of every allotment, transfer and board resolution from the start.
- Plan authorized capital and share classes ahead of the round, not on the closing day.
This essay is general information, not legal or tax advice. Rules and fees change, so confirm the current requirements with a chartered accountant, company secretary or lawyer before acting.
