Authorized Shares
Authorized shares refer to the maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation or bylaws. These shares represent the total number of shares that can be issued to shareholders, including common stock and preferred stock. Authorized shares are not necessarily issued to investors or held by the public; they simply represent the maximum limit set by the company’s charter.
It is important to distinguish between authorized shares and issued shares. Issued shares are those that have been sold and are owned by shareholders, while outstanding shares are issued shares that are still held by the shareholders. A company may have authorized more shares than it has issued or outstanding, giving it flexibility to raise capital, issue shares to employees as part of compensation plans, or carry out other corporate actions in the future.
Example of Authorized Shares
Let’s say a company called XYZ Corporation has specified in its articles of incorporation that it is authorized to issue a maximum of 10 million shares. This means XYZ Corporation can issue up to 10 million shares to investors, either as common stock or preferred stock.
At present, XYZ Corporation has issued 5 million shares to its shareholders, which means there are still 5 million authorized but unissued shares. XYZ Corporation can use these remaining authorized shares for purposes such as raising additional capital, issuing shares as part of employee stock option plans, or conducting stock splits or dividends.
In this example, the total authorized shares are 10 million, issued shares are 5 million, and the unissued shares are the difference, which is 5 million.
