Glossary
Authorized shares
The maximum number of shares a company's charter allows it to issue; issued and outstanding shares are usually far fewer.
Authorized shares are the maximum number of shares a corporation is legally allowed to issue, as set out in its charter (the certificate or articles of incorporation). The figure is a ceiling, not a count of what exists, and it matters because the gap between authorized and issued shares is how much room a board has to issue new stock, which can dilute existing owners.
Authorized, issued and outstanding
Three share counts appear on a balance sheet or in the notes:
- Authorized: the cap in the charter.
- Issued: shares the company has ever sold or granted and not formally retired.
- Outstanding: issued shares held by investors, which excludes treasury stock that the company has bought back and holds.
Earnings per share and market capitalization are based on outstanding shares, never authorized ones.
Why investors care
Raising the authorized number requires a charter amendment, which in most US states needs a shareholder vote. A proposal to increase authorized shares sharply, appearing in a proxy statement, often signals plans for a stock split, an acquisition paid in stock, a capital raise or larger employee equity grants. Small and struggling companies sometimes seek huge increases to fund themselves by selling stock, a common path to heavy dilution.
A large unused authorization is normal for established companies and is not a problem in itself; what matters is how the board uses it.