A:

Capital stock and treasury stock describe two different types of a company's shares. Capital stock is the total amount of shares a company is authorized to issue, while treasury stock is the amount of shares a company holds in its treasury.

Capital stock consists of a company's common and preferred shares that it is authorized to issue based on the company's corporate charter. The corporate charter is a legal document and indicates the maximum amount a company is allowed to issue. Investors who own common and preferred shares may have benefits, such as receiving dividends and having voting rights. (See also: What is Common and Preferred Stock?)

For example, company ABC's corporate charter indicates it may issue a maximum of 200 million shares, consisting of 150 million shares of common stock and 50 million shares of preferred stock. Company ABC issues 100 million shares of common stock and 20 million shares of preferred stock. Therefore, if investors are long in the stock, the shareholders receive any benefits associated with the stock.

Conversely, treasury stock is the number of shares issued less the number of outstanding shares. Shares of treasury stock may be from a stock buyback or from when the issuing company is unable to sell all of the shares it issued. Unlike common and preferred stock, treasury stock does not pay dividends and does not offer any voting rights.

For example, company ABC issued 100 million shares of common stock and was only able to sell 70 million of those shares. In addition, it issued 20 million shares of preferred stock and was only able to sell 5 million of those shares. Therefore, company ABC has 30 million (100 million - 70 million) common shares and 15 million (20 million - 5 million) preferred shares in its treasury.

RELATED FAQS
  1. Why would a company issue preference shares instead of common shares?

    Learn about some reasons corporations might issue preference shares and why investors might value them more than common shares. Read Answer >>
  2. What is the difference between preferred stock and common stock?

    Preferred stockholders have a greater claim to a company's assets and earnings than common stockholders, but may not have ... Read Answer >>
  3. What Is a Treasury Stock?

    Treasury stocks are shares that were once part of shares outstanding but were since decommissioned. Read Answer >>
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