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.

RELATED FAQS

  1. What is real estate underwriting?

    See how underwriters for major lenders scrutinize real estate loans and manage their risk, and learn the origin of the term ...
  2. How is a penny stock created?

    Understand how penny stocks are issued and regulated, and learn how these sometimes rewarding but always risky investments ...
  3. In an IPO, who is a greensheet distributed to and for what purpose?

    One of the most talked about documents that arises in the process of introducing a new issue is the greensheet. This is an ...
  4. Why do share prices fall after a company has a secondary offering?

    The best way to answer this question is to provide a simple illustration of what happens when a company increases the number ...
RELATED TERMS
  1. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  2. Short Put

    A type of strategy regarding a put option, which is a contract ...
  3. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  4. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  5. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
  6. Volcker Rule

    The Volcker rule separates investment banking, private equity ...
Related Articles
  1. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  2. Applying Binary Options To Equity Markets
    Options & Futures

    Applying Binary Options To Equity Markets

  3. Can You Buy Stock Insurace? 3 Strategies ...
    Options & Futures

    Can You Buy Stock Insurace? 3 Strategies ...

  4. ETF Options Hedge Risk of ETF Trades
    Mutual Funds & ETFs

    ETF Options Hedge Risk of ETF Trades

  5. The 10 Biggest Latin American Banks
    Investing Basics

    The 10 Biggest Latin American Banks

Trading Center