Issued and Outstanding Shares

Definition

Issued and Outstanding Shares refer to the number of shares of a corporation’s stock that have been authorized in its corporate charter and subsequently issued to and held by shareholders. These shares represent the actual capital invested by the firm’s shareholders and owners.

Key Characteristics

Authorized Shares: The total number of shares a corporation is legally allowed to issue, as specified in its corporate charter.
Issued Shares: The portion of authorized shares that have been distributed to investors, including shares held by company insiders and the public.
Outstanding Shares: The portion of issued shares that are currently held by investors and are available for trading in the stock market. This excludes treasury stock, which is repurchased by the company.

Examples

Example 1: A technology firm has authorized 1,000,000 shares in its corporate charter. It has issued 800,000 shares, and 700,000 of these are currently outstanding (the company holds 100,000 shares as treasury stock).
Example 2: A manufacturing company initially authorizes 2,000,000 shares. Over time, it issues all the authorized shares, but due to share repurchase programs, only 1,800,000 shares remain outstanding.

Frequently Asked Questions

What is the difference between authorized, issued, and outstanding shares?

Authorized shares are the maximum number of shares a corporation can issue as stated in its corporate charter. Issued shares are the number of shares that have been allocated to shareholders. Outstanding shares are those issued shares that are currently held by shareholders and available for trading.

Can the number of outstanding shares change?

Yes, the number of outstanding shares can change due to corporate actions such as share repurchase programs, issuing additional shares, stock splits, or mergers and acquisitions.

How do issued and outstanding shares affect shareholder equity?

Issued and outstanding shares contribute to shareholder equity. The more shares issued and outstanding, the greater the dilution of ownership for each individual shareholder.

Why do companies buy back their shares?

Companies may buy back shares to reduce the number of outstanding shares, thereby increasing the value of remaining shares and potentially improving financial ratios.

What are treasury shares?

Treasury shares are those issued shares that have been repurchased by the company and are not considered outstanding. They do not confer voting rights or dividends.

Authorized Shares: The maximum number of shares a corporation can issue, as stipulated in the corporate charter.
Treasury Shares: Shares that were issued and subsequently repurchased by the company, reducing the number of outstanding shares.
Capital Stock: The total shares of stock that have been authorized, issued, and are outstanding, representing ownership in a corporation.
Share Repurchase: A corporate action whereby a company buys back its own shares from the marketplace, reducing the number of outstanding shares.
Stock Split: An increase in the number of outstanding shares of a corporation’s stock without an increase in shareholders’ equity, effectively reducing the share price.

Online References

Suggested Books for Further Studies

“Common Stocks and Uncommon Profits and Other Writings” by Philip A. Fisher
“The Intelligent Investor” by Benjamin Graham
“The Neatest Little Guide to Stock Market Investing” by Jason Kelly
“Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe

Fundamentals of Issued and Outstanding Shares: Corporate Finance Basics Quiz

### What are authorized shares? - [x] The maximum number of shares a corporation can issue - [ ] The number of shares currently held by shareholders - [ ] The portion of shares repurchased by a company - [ ] Shares that a company plans to buy next year > **Explanation:** Authorized shares are the total number of shares a corporation is legally allowed to issue as stipulated in its charter. ### If a company has issued 1,000,000 shares and bought back 200,000 of those shares, how many are outstanding? - [ ] 1,200,000 - [x] 800,000 - [ ] 1,000,000 - [ ] 200,000 > **Explanation:** Issued shares minus treasury shares (repurchased shares) give the number of outstanding shares, so 1,000,000 - 200,000 = 800,000. ### What is the main idea behind a share buyback program? - [ ] To increase the number of outstanding shares - [x] To reduce the number of outstanding shares - [ ] To change the corporate charter - [ ] To issue new shares to employees > **Explanation:** Share buyback programs aim to reduce the number of outstanding shares, often leading to an increase in the value of remaining shares. ### Do treasury shares have voting rights and receive dividends? - [ ] Yes, they have both - [ ] They only have voting rights - [ ] They only receive dividends - [x] No, they have neither > **Explanation:** Treasury shares do not confer voting rights and do not receive dividends. ### What typically happens to share price when a company announces a stock buyback? - [x] It increases - [ ] It decreases - [ ] It stays the same - [ ] It becomes zero > **Explanation:** A stock buyback often signals confidence from the company, leading to an increase in share price. ### Can authorized shares be changed? - [x] Yes, with a shareholder vote - [ ] No, they are fixed at incorporation - [ ] Yes, through a decision by the Board of Directors alone - [ ] Only if the company is acquired > **Explanation:** Shareholders must vote to amend the corporate charter to change the number of authorized shares. ### What is the effect of issuing more shares on existing shareholders? - [ ] Increases ownership percentage - [x] Dilutes ownership percentage - [ ] No effect on ownership percentage - [ ] Eliminates voting rights > **Explanation:** Issuing more shares dilutes the ownership percentage of existing shareholders. ### What financial statement shows the number of issued and outstanding shares? - [x] The balance sheet - [ ] The income statement - [ ] The statement of cash flows - [ ] The profit and loss statement > **Explanation:** The balance sheet includes information about issued and outstanding shares as part of the equity section. ### How does the number of outstanding shares impact the Earnings Per Share (EPS) calculation? - [x] EPS is divided by the total number of outstanding shares - [ ] EPS is multiplied by the total number of outstanding shares - [ ] EPS is subtracted from the total number of outstanding shares - [ ] The number of outstanding shares does not affect EPS > **Explanation:** EPS is calculated as net income divided by the number of outstanding shares. ### What is the relationship between treasury shares and outstanding shares? - [x] Treasury shares are not included in outstanding shares - [ ] Treasury shares are included in outstanding shares - [ ] Treasury shares equal outstanding shares - [ ] There is no relationship > **Explanation:** Treasury shares are repurchased and are therefore not counted in the total number of outstanding shares.

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