What is the difference between authorized shares and issued shares?
Authorized shares are reported to the State as the maximum number of shares that will ever be issued. A company can issue less shares than it has authorized. Here is an example: A company has authorized 10,000 shares. It has only issued 100 of them – 75 to Jane and 25 to Sue. Jane owns 75% of the company. In the future, more shares may be issued. This would shrink Janes percentage of ownership, though she would still own 75 shares.
The Articles of Incorporation must designate the number of shares of stock that the corporation may issue to shareholders. The shares are issued to shareholders in the corporation s first minutes. The number of shares actually issued to shareholders are referred to as the “issued” shares of stock. It is good practice for the number of “authorized” shares to substantially exceed the number of shares that have been actually “issued” to shareholders to enable the corporation to engage in future transactions (e.g., issuing shares to a key employee, stock split, etc.) (top).
“Authorized shares” refers to the total number of shares that a corporation is authorized to issue to its shareholders in one or more share certificates. The owners of a corporation decide this number, and it is listed in the Articles of Incorporation. There is generally no legal or tax significance to the number of authorized shares, although some states charge a variable filing fee to file Articles of Incorporation based on the number of authorized shares (often in combination with a share’s “par value” discussed below). “Issued shares” refers to the number of authorized shares that the corporation has actually issued to its shareholders, as represented in one or more share certificates. This information is not kept on file with any state agency, but all issuances of stock are recorded in the corporation’s stock ledger and documented in the corporate minutes.
