Understanding Authorized, Issued, and Outstanding Shares

When a corporation is formed, its certificate of incorporation (or articles of incorporation) specifies the maximum number of shares the company may issue. These shares represent ownership in the corporation, and how they are handled is central to understanding corporate ownership percentages and control.

Authorized Shares

Authorized shares are the total number of shares a corporation is legally permitted to issue, as approved in its formation documents.

• Example: A corporation is authorized to issue 200 shares. This is the maximum, but the corporation does not need to issue them all at once.

Issued Shares

Issued shares are the subset of authorized shares that the corporation has actually distributed to shareholders.

• Example: Out of the 200 authorized shares, the corporation issues 40 shares to A and 60 shares to B. That means 100 shares are issued.

Outstanding Shares

Outstanding shares are the shares currently held by shareholders. They equal the number of issued shares, unless the corporation later buys back some of its stock (called treasury shares).

• Example: If the corporation has issued 100 shares and none have been repurchased, then 100 shares are outstanding.

Unissued Shares

Unissued shares are the difference between the authorized shares and the issued shares. These are shares that the corporation could issue in the future, which might dilute existing shareholders’ percentages.

• Example: With 200 authorized shares and 100 issued, there are still 100 unissued shares.

Ownership Percentages

Ownership is always calculated based on issued and outstanding shares, not authorized shares.

• A owns 40 ÷ 100 = 40%
• B owns 60 ÷ 100 = 60%

Together, A and B own 100% of the corporation—unless the corporation later issues more shares to new investors.

Why This Matters

• Control: Voting power is tied to outstanding shares. A shareholder with 60% of the stock controls the company.
• Dilution: If new shares are issued, existing percentages go down unless current shareholders buy additional shares.
• Valuation: The number of outstanding shares also affects the corporation’s market value, since it determines how ownership is divided.

Example Recap:

• Authorized: 200
• Issued: 100 (40 to A, 60 to B)
• Outstanding: 100
• Unissued: 100
• A owns 40%, B owns 60%

This simple example illustrates the difference between what a corporation may issue and what it has issued, and how ownership percentages are determined.