Authorized Shares vs. Issued Shares

Authorized and Issued shares in the company represent two different values of the total shares. The difference between these can determine the share price at a certain time, and if the company can issue new shares to investors. Understanding the distinction between authorized and issued shares is crucial for managing a company’s equity structure and ensuring compliance with corporate governance and securities regulations.

Authorized Shares

These are the total number of authorized shares mentioned in the articles of incorporation of the company. While larger companies may have hundreds of millions or billions of authorized shares, smaller companies may have only one million authorized shares for the founders and potential investors.

• The maximum number of shares a company is legally permitted to issue, as specified in its articles of incorporation or charter.
• Authorized shares represent the total pool of shares the company can potentially issue.
• It can be changed through a shareholder vote and amendment to the company’s charter.
• Authorized shares provide flexibility for future share issuances without bedding immediate charter ammendments.

Issued Shares

Issued Shares are called outstanding shares or issued shares. The total number of issued shares are done by the founder, or later on by investment banks in case the company reaches an initial public offering (IPO).

• Issued shares are the actual number of shares the company has sold or generated to shareholders.
• It includes all common and preferred stock that has been issued ,as well as exercised stock options and warrants.
• Cannot exceed the number of authorized shares.
• Represents the ownership stakes in the company that have been distributed.

Detailed overview – Authorized Shares vs. Issued Shares

Authorized shares refer to the maximum number of shares a company can legally issue, as specified in its articles of incorporation or charter. On the other hand, issued shares are those the company has already sold or granted to shareholders.

To illustrate the difference between authorized and issued shares, consider the following example:

• Company: XYZ
• Authorized Shares: 10 million
• Issued Shares: 6 million

In this example, Company XYZ has authorized 10 million shares in its articles of incorporation. However, it has only issued 6 million of these shares to investors and employees. The remaining 4 million shares are authorized but unissued. These unissued shares can be used for future needs, such as raising additional capital or issuing stock options to employees.

Difference between authorized shares and Issued shares

Companies often authorize more shares than they initially issue to allow for future growth, employee stock options, or potential acquisitions without needing frequent charter amendments. This will enable them to manage their capital structure and equity distribution over time.

Issue new stock wisely in the future!

Having a high number of authorized shares provides flexibility but also represents potential dilution for existing shareholders. Companies must balance the need for future issuance capacity with the interests of current shareholders when determining the number of authorized shares.

Understand more about Authorized Shares vs Issued Sharesthrough Eqvista. All you need to do is contact us. Also, Eqvista offers a cap table application that can help you to keep track of your shares.