Unlike other business structures, a corporation has the ability to issue stock as a way of raising capital to run the business. A corporation may receive assets such as cash, property and services in exchange for shares of the company. Stock represents ownership in a corporation and determines the amount of profit a shareholder receives from the business. A shareholder that owns 15 percent of a corporation receives 15 percent of the company’s profits and losses.
The number of shares a corporation is authorized to issue appears in the company’s articles of incorporation. The number of shares the company has the authorization to issue must be approved by the company’s state of incorporation. A company does not have to issue all of its authorized shares at once, which gives the company the ability to raise capital by issuing stock at a later date. A company can amend the articles of incorporation to raise the number of shares the corporation has the authorization to issue.
Issued shares represent the number of authorized shares a company sells to investors. Other corporations, partnerships, limited liability companies and individuals may purchase shares of a corporation. The number of issued shares can never be greater than the number of authorized shares, because the company can never issue more shares than the corporation has the authorization to issue. A corporation’s board of directors has the responsibility of issuing shares, and the board may issue all or a portion of the company’s authorized shares.
Treasury stock occurs when a corporation repurchases previously reissued shares. Treasury stock appears on a corporation’s balance sheet in the stockholders’ equity section. When a corporation buys treasury stock, it reduces the amount of equity stockholders have in the business. Treasury shares do not have voting privileges and cannot receive dividend payments. A corporation has the ability to reissue treasury shares at any point.
The number of outstanding shares refers to the number of issued shares that have not been repurchased by the company, as explained by the AccountingCoach website. The number of outstanding shares can never be greater than the number of shares issued to investors. Outstanding shares equal issued shares minus treasury shares. For instance, a company that issues 100 shares and repurchases 35 shares has 65 outstanding shares.
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