Authorized Stock

Authorized stock (or authorized shares) is the maximum number of shares a corporation may legally issue, as specified in its articles of incorporation or corporate charter. It sets an upper limit; a company cannot issue more shares than this total without amending its charter and typically gaining shareholder approval.

Key terms

• Authorized shares: The maximum shares allowed by the charter.
• Issued shares: Shares the company has actually issued to shareholders.
• Outstanding shares: Issued shares currently held by investors (includes restricted shares and the float).
• Float: Issued shares freely available to trade on public markets.
• Restricted shares: Issued but not freely tradable (often reserved for employees).
• Treasury stock: Unissued or reacquired shares held by the company.
  Note: Outstanding shares can never exceed authorized shares.

Why companies authorize more shares than they issue

Companies often keep authorized shares well above current issuance to retain flexibility:
* Raise capital later through additional offerings without immediate charter changes.
* Reserve shares for employee compensation, stock option plans, or acquisitions.
* Maintain control and reduce the risk of dilutive pressure that could enable hostile takeovers.

Example: If a company authorizes 1,000,000 shares, issues 500,000 in an IPO, reserves 50,000 for employee options, and later sells 150,000 in a secondary offering, it would retain 300,000 shares in its treasury (1,000,000 − 500,000 − 50,000 − 150,000).

Example

A corporate charter might specify large authorizations to provide room for future needs. For instance, a charter could authorize 5 billion shares of common stock and 500 million shares of preferred stock, with provisions to increase authorized common shares if needed to accommodate preferred conversions—typically subject to shareholder approval.

Dilution considerations

A large gap between authorized and outstanding shares represents potential for dilution. Issuing additional shares can:
* Reduce an existing shareholder’s ownership percentage and voting power.
* Lower earnings per share (EPS) by spreading earnings across more shares.

Investors monitor authorized-vs-outstanding totals to assess dilution risk.

Where to find authorized shares

Authorized share totals are disclosed in a company’s articles of incorporation or corporate charter and are often reported in SEC filings (such as the 10‑K) and the company’s investor relations materials.