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. Why would I need to know how many outstanding shares the shareholders have?

    Find out why shareholders should know how many outstanding shares have been issued by a corporation, and learn what happens ... Read Answer >>
  2. Why is the value of capital stock important to public shareholders?

    Understand what capital stock is and how it's issued and authorized. Learn why the value of capital stock important to public ... Read Answer >>
  3. What's the difference between a capital stock and a treasury stock?

    Learn about treasury capital stock, how to calculate a company's capital and treasury stock, and the differences between ... Read Answer >>
  4. Why is an increase in capital stock on a company's balance sheet a bad sign for stockholders?

    Understand what capital stock represents for a company and understand the significance for investors when a company initiates ... Read Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    Find out about the difference between subscribed share capital and issued share capital, including an explanation of the ... Read Answer >>
  6. What is a treasury stock?

    Every company has an authorized amount of stock it can issue legally. Of this amount, the total number of shares owned by ... Read Answer >>
Related Articles
  1. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  2. Investing

    Types Of Shares: Authorized, Outstanding, Float And Restricted Shares

    A company’s financial statements may refer to multiple types of stock, including authorized, outstanding, float and restricted shares. If a company issues more shares, its outstanding shares ...
  3. Investing

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  4. Investing

    Getting Acquainted With Treasury Stock

    When publicly traded businesses decided to buy back some of their outstanding shares, it becomes treasury stock. Treasury stock confers no voting rights or dividends, but helps boost shareholder ...
  5. Investing

    How To Pick Winning Penny Stocks

    Cheap doesn't always equal good. When choosing penny stocks, investors would be wise to note several key factors that affect the way these stocks trade.
  6. Investing

    Why Do Companies Care About Their Stock Prices?

    Read on to learn more about the nature of stocks and the true meaning of ownership.
  7. Investing

    What Are Corporate Actions?

    Corporate actions are processes that change a company’s stock. Here are a few examples.
  8. Investing

    Floating Stock

    Floating stock is the number of a company’s shares that are available for the public to buy and sell.
  9. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  10. Investing

    Charter Price Target Upped Ahead of Earnings

    Charter Communications had its PT raised by Guggenheim, which predicts greater market share.
RELATED TERMS
  1. Authorized Stock

    The maximum number of shares that a corporation is legally permitted ...
  2. Issued Shares

    The number of authorized shares that is sold to and held by the ...
  3. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
  4. Positive Authorization

    A system used to authorize retail purchases. Positive authorization ...
  5. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  6. Authority Bond

    A debt security issued by an authority, such as a corporate or ...
Hot Definitions
  1. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  2. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  3. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
  5. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security ...
  6. Porter Diamond

    A model that attempts to explain the competitive advantage some nations or groups have due to certain factors available to ...
Trading Center