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.

VIDEO

Loading the player...

BREAKING DOWN '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.

RELATED TERMS
  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  3. Float

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

    A set of documents filed with a government body to legally document ...
  5. Capital Account

    A national account that shows the net change in asset ownership ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
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. Investing Basics

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  8. Investing Basics

    What's a Price-Taker?

    Price-taker is an economic term describing a market participant who has no effect on overall market activity.
  9. Investing Basics

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  10. Economics

    Explaining the Balanced Scorecard

    A balanced scorecard is a metric that measures a business’ performance.
RELATED FAQS
  1. 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 ... Read Full Answer >>
  2. 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. ... Read Full Answer >>
  3. 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 ... Read Full Answer >>
  4. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  5. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  6. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  2. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  3. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  4. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  5. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  6. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!