What is authorized stock?

A:

Authorized stock represents the maximum number of common shares that can be issued legally by the company as stated in the company's charter.

The number of authorized shares that is identified in the company's charter often greatly exceeds the number of shares that is issued during a company's IPO. The remaining authorized shares are often used by the company to distribute future stock options, and for the raising of additional capital for the company. Whenever a company makes a secondary offering, these shares come from authorized shares, and subsequently reduce number of remaining authorized shares.

If a company is constantly issuing shares, management may decide that an increase in the number of authorized shares may be necessary. For the total number of authorized stock to increase it must be approved through a shareholder vote.

To learn more, see The Basics Of Outstanding Shares And The Float, Markets Demystified, and Stock Basics Tutorial.

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