Shares Outstanding Vs. Shares Authorized

by Christopher Carter

A corporation is the only type of business structure capable of issuing stock. A corporation can issue both common and preferred shares as a way of raising capital to finance the company’s business activities. Preferred shareholders receive dividends before common shareholders in the event of liquidation. Also, preferred shareholders may receive a higher dividend per share compared to common shareholders. Common shareholders have the right to vote on company issues, and pick the individuals who serve on the board of directors.

Significance

Corporations can sale stock via an initial public offering (IPO). In most cases, a new corporation sells stock as a result of an IPO. A corporation does not have any involvement in stock-related activities after the company has its IPO. Investors can purchase shares of a corporation freely on the stock market.

Authorized

The number of shares a corporation has the authorization to issue appears in the company’s articles of incorporation, also known as a certificate of incorporation. This contains basic information about a business, such as the name and location of the company, the purpose for organizing the company, and the name and address of each person responsible for filing the articles. The number of shares a company has the authorization to issue is approved by the secretary of the state where the company filed its articles of incorporation.

Issued

The number of issued shares refers to the number of authorized shares a company has issued to investors. A corporation does not have to issue all of its authorized shares. For example, a corporation may have the authorization to issue 1 million shares, but the company may decide to only issue 50,000 shares. This gives the company the power to issue more shares at a later time. The number of shares a company issues can never be greater than the number of shares it has the authority to issue.

Outstanding

A corporation’s outstanding shares are the issued shares the company has not repurchased. When a company repurchases previously issued shares, the acquisition of the issued shares is known as treasury stock. For example, a company that issues 100 shares, but repurchases 20 shares, has 80 shares of stock outstanding. The number of outstanding shares can never be greater than the number of shares the company has issued.

About the Author

Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.

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