Authorized Shares vs. Issued Shares
Authorized and Issued shares in company represent two different values of the total shares.
Authorized and Issued shares in 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.
These total number of authorized shares mentioned in the articles of incorporation of the company. While larger companies may have hundreds of million or billions of authorized shares, smaller companies may have only one million authorized shares for the founders and potential investors.
In case the company needs more shares to issue, the total authorized share can be altered through the shareholder’s vote during the annual shareholder meeting.
These are the shares that are sold or issued to investors from the the authorized shares. They 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). But this number can change. There are two reasons as to why the number can change:
- When there is a secondary stock market offering; or
- When there is a payment of the employee stock options
The total number of issued shares can also decrease when the corporation has a share buy-back. The overall number of issued shares can never be greater than the total authorized shares in a company as per the company’s Articles of Incorporation.