A corporation is the only business entity allowed to issue stock. Corporations issue stock to raise capital to finance their business activities. A corporation may issue preferred or common stock. When a corporation issues one class of stock, it is automatically treated like common stock, as explained by the AccountingCoach website. The number of shares a corporation has the authority to issue usually differs from its number of outstanding shares.
The number of shares a corporation is authorized to issue is listed in the company’s articles of incorporation, also known as a certificate of incorporation. Because a company does not have to issue all of its shares, the number of shares authorized can differ from the number of outstanding shares. For instance, a corporation might be authorized to issue 50,000 shares but decide to issue only 10,000 shares.
An initial public offering occurs when a new or existing corporation issues shares of stock for sale. In general, new corporations are more likely than existing corporations to hold an IPO, as explained by the Middle City website. After an IPO, a corporation has little if any involvement in stock market transactions. The company’s stock will be bought and sold on the stock market by businesses and individual investors.
When a corporation sells some of its authorized shares, it is said that the company has “issued” the shares, according to AccountingCoach. A corporation may use the cash obtained from issuing shares to pay off existing obligations or to acquire a new business. Issued shares of a corporation are traded freely by investors and shareholders. A corporation has the ability to buy back issued shares of its own stock.
A corporation’s outstanding shares of stock are the issued shares owned by shareholders. The number of outstanding shares may be equal to or less than the number of issued shares. For instance, a corporation that issues 1,000 shares has 1,000 shares outstanding. However, let’s say that corporation then buys back 100 of those shares. This corporation has 1,000 issued shares and 900 outstanding shares. The number of outstanding shares will never be greater than the number of shares the corporation is authorized to issue.
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