Authorized Stock

AAA

DEFINITION of 'Authorized Stock'

The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation. Authorized stock, also known as “authorized shares” or “authorized capital stock,” is also usually listed in the capital accounts section of the balance sheet. Authorized shares should not be confused with outstanding shares, which are the number of shares the corporation has actually issued that are held by the public.

INVESTOPEDIA EXPLAINS 'Authorized Stock'

The number of authorized shares is typically higher than those actually issued, which allows the company to sell more shares if it needs to raise additional funds. For example, if a company had 1 million authorized shares, it might only sell 500,000 of the shares during its IPO. That would leave 500,000 shares unissued. The company might distribute some as stock options to attract and retain employees. It might sell others in a secondary offering to raise more money in the future. Another reason a company might not want to issue all of its authorized shares is to maintain a controlling interest in the company and prevent the possibility of a hostile takeover.

Amazon’s corporate charter, for example, states the company’s total authorized stock shall include 5 billion shares of common stock and 500 million shares of preferred stock. The charter permits Amazon to increase its authorized stock if there isn’t enough unissued common stock to allow the conversion of preferred stock. Corporate charters often require shareholder approval to increase the number of shares of authorized stock.

One reason an investor might want to know how many authorized shares a company has is to analyze the potential for stock dilution. Dilution reduces a stockholder’s share of ownership and voting power in a company and reduces a stock’s earnings per share when new stock is issued. The larger the difference between the number of authorized shares and the number of outstanding shares, the greater the potential for dilution.

VIDEO

RELATED TERMS
  1. Float

    Money in the banking system that is briefly counted twice due ...
  2. Articles Of Incorporation

    A set of documents filed with a government body to legally document ...
  3. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  4. Capital Account

    A national account that shows the net change in asset ownership ...
  5. Issued Shares

    The number of authorized shares that is sold to and held by the ...
  6. Corporate Charter

    A written document filed with a U.S. state by the founders of ...
Related Articles
  1. Investing Basics

    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 Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  3. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  4. Options & Futures

    The Two Sides Of Dual-Class Shares

    Find out how dual-class shares can affect a company's performance.
  5. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
  6. Forex Education

    The Dangers Of Share Dilution

    Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders.
  7. Options & Futures

    What is the weighted average of outstanding shares? How is it calculated?

    The amount of shares outstanding in a company will often change due to a company issuing new shares, repurchasing and retiring existing shares, and other financial instruments such as employee ...
  8. Options & Futures

    What does the diluted share price reveal about a company's financial strength?

    When a corporation releases its financial information, there are a few different variations used when reporting total earnings. These variations are: total dollar amounts, earnings as a percent ...
  9. Active Trading Fundamentals

    How can a company trade more shares in one day than there are shares outstanding?

    The number of shares traded in a single day can be greater than the number of a company's outstanding shares, but this is relatively rare. This high trading volume tends to occur during important ...
  10. Technical Indicators

    What are the signs of a bear market rally?

    Read about some of the signs of a bear market rally, an unpredictable bull movement that takes place in the middle of a stronger downtrend.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center