Authorized stock is the maximum number of shares a company can issue. Outstanding stock is the difference between issued stock and repurchased stock held for resale. Issued stock is what the company has issued, which is less than the authorized stock.
Each share of common stock represents an ownership interest, which is the ratio of the shares you hold to the outstanding shares. Authorized stock is higher than issued and outstanding stock because companies need the flexibility of issuing additional shares without having to return to the regulatory authorities for approval.
For example, a company may specify 10 million shares as the authorized number of shares in its incorporation documents. However, it may issue only 10 percent of the authorized amount when it lists on a stock market because the proceeds would be sufficient to fund operations.
The accounting records would note the number of authorized shares but use the outstanding share count for calculating shareholders' equity. The number of authorized shares is useful information for company management, but has no relevance for investors. You cannot access authorized shares until they start trading. A company may apply for an increase to its authorized stock if it needs to raise additional capital either for operations or for strategic acquisitions. The outstanding share count changes when a company issues new shares or repurchases existing shares.
Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Investing Investing Essentials. Authorized Shares vs. Outstanding Shares: An Overview Understanding stock market terminology allows investors to make appropriate, intelligent decisions. Key Takeaways Authorized shares are the maximum number of shares a company is allowed to issue to investors, as laid out in its articles of incorporation. Outstanding shares are the actual shares issued or sold to investors from the available number of authorized shares.
Understanding the difference between the two types of shares allows for more accurate calculations of financial ratios and a better understanding of a company's financial stability. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. In most cases, an issued share has been sold to an investor.
A company, however, can also issue shares to its employees as an alternative to their typical compensation. A company's Articles of Incorporation will authorize a certain number of shares to be issued.
Companies are not allowed to issue shares beyond this number. In some cases, a corporation will need or want to issue more shares than are allowed by their Articles of Incorporation. Before they can begin issuing new shares, the current shareholders would need to give their approval, and the number of authorized shares listed in the Articles of Incorporation would need to be increased. A company's legal capital is often defined as the par value of a single stock share.
In most cases, the par value of a stock will be very small. Usually, this amount has been specified in state law. When a company issues stock, the par value must be recorded. The remaining authorized but unissued shares are available in the event a corporation needs to issue more shares.
These additional authorized shares, held in reserve, give a corporation some flexibility in the event that it depletes the initial amount of shares reserved for the employee stock option pool and needs to increase the pool when hiring a new employee, co-founder or executive.
If a startup does not have a cushion of authorized shares beyond the number of already issued shares, it would first need to deal with the administrative burden of obtaining required board and stockholder approvals to increase the number of authorized shares of common stock, and then would need to file a charter amendment in its state of incorporation.
See our article about how shares are issued to founders. Outstanding shares are shares of stock that a corporation has issued and which have been "fully paid for.
Reserved shares are authorized shares that are set aside for issuance in the future.
0コメント