Definition
Unissued stock refers to the shares of a corporation’s equity that have been authorized for issuance according to the corporate charter but have not yet been issued to shareholders. These shares are distinguishable from issued and outstanding shares, which are held by investors and enable voting rights and dividend payments.
Key Attributes:
- Non-voting: Unissued shares do not confer any voting rights.
- No Dividends: These shares are not eligible to receive dividends.
- Balance Sheet Representation: Unissued shares are listed on the company’s balance sheet.
Differences from Treasury Stock:
- Unissued Stock: Shares that have never been issued.
- Treasury Stock: Shares that were once issued but have been reacquired by the corporation.
Examples
- Corporate Stock Reserves: A company might authorize 1,000,000 shares of stock, but only issue 750,000 to the public. The remaining 250,000 shares are unissued.
- Strategic Reserves: A corporation might keep a portion of its authorized shares as unissued stock to be potentially used for future growth opportunities, mergers, or acquisitions.
Frequently Asked Questions (FAQs)
Q1: Why would a corporation choose to have unissued stock?
A1: Companies maintain unissued stock to provide flexibility for future capital needs such as stock options, employee compensation plans, or future financing.
Q2: Can unissued stock influence the value of the issued stock?
A2: Indirectly, yes. The potential for issuing additional shares can dilute the value of existing shares and affect investor perceptions.
Q3: Are unissued shares considered part of the company’s equity?
A3: While unissued shares are authorized to be part of the company’s equity, they do not impact the equity calculation until they are issued.
Q4: Can unissued stock become issued stock?
A4: Yes, unissued stock can be issued in the future if the company decides to sell additional shares.
Q5: How are unissued shares reported on financial statements?
A5: Unissued shares are disclosed in the equity section of the balance sheet, typically in a note regarding authorized capital stock.
Issued and Outstanding Shares:
Shares that have been issued by the company to shareholders and are currently held by them, providing the right to vote and receive dividends.
Treasury Stock:
Shares that were issued and later repurchased by the company, reducing the number of shares outstanding and held in the company’s treasury.
Online References
- Investopedia – Unissued Stock
- [SEC – Guide to Financial Statements](https://www.sec.gov/oiea/reportspubs/investor-publications/investorpubs初心者_莎 boh5.pdf)
- AccountingTools – Unissued stock
Suggested Books for Further Studies
-
“Financial Accounting” by Walter T. Harrison Jr., Charles T. Horngren, C. William Thomas
- Comprehensive book that covers the basics of financial accounting including stock and equity management.
-
“Accounting for Dummies” by John A. Tracy
- An accessible guide to understanding the fundamentals of accounting, including specifics about stock.
-
“Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, Franklin Allen
- Provides in-depth insights into corporate finance principles, including stocks and equity management.
Fundamentals of Unissued Stock: Financial Accounting Basics Quiz
### Why do companies maintain unissued stock?
- [x] To provide flexibility for future financial needs.
- [ ] To distribute dividends.
- [ ] To avoid having to issue any stock at all.
- [ ] For immediate revenue.
> **Explanation:** Companies maintain unissued stock to keep flexibility for future financial needs such as issuing employee stock options, raising capital, or other strategic opportunities.
### Can unissued stock pay dividends?
- [ ] Yes, unissued stock can still receive dividends.
- [x] No, unissued stock cannot pay dividends.
- [ ] Only if specified in the company bylaws.
- [ ] After 2 years of remaining unissued.
> **Explanation:** Unissued stock cannot pay dividends as these shares have not been distributed to shareholders and therefore do not participate in dividend payments.
### How are unissued shares reported in financial statements?
- [ ] As current liabilities.
- [ ] Under inventory.
- [x] In the equity section, typically in notes regarding authorized capital stock.
- [ ] As a loan payable.
> **Explanation:** Unissued shares are disclosed in the equity section of the balance sheet, typically in a note regarding authorized capital stock.
### What is the difference between unissued stock and treasury stock?
- [ ] Treasury stock never existed.
- [x] Unissued stock has never been issued, while treasury stock was issued and later reacquired.
- [ ] Unissued stock is more valuable.
- [ ] Treasury stock allows voting rights.
> **Explanation:** Unissued stock has never been issued to shareholders, whereas treasury stock refers to shares that were issued and later bought back by the company.
### Can unissued stock be issued in the future?
- [x] Yes, it can be issued when the company decides to sell additional shares.
- [ ] No, once unissued it always remains so.
- [ ] Only if the company's profitability reaches a certain threshold.
- [ ] Only with board approval every year.
> **Explanation:** Unissued stock can be issued in the future if the company decides to sell additional shares to raise capital or for other purposes.
### Does unissued stock influence existing share value directly?
- [ ] Yes, it boosts the value immediately.
- [ ] No, it has no impact whatsoever.
- [x] Indirectly, as the potential issuance could lead to dilution.
- [ ] Unissued stock has no bearing on market activities.
> **Explanation:** While unissued stock does not directly affect share value, the potential for future issuance can lead to concerns of dilution affecting existing stockholder value.
### Who decides the number of unissued shares a company can hold?
- [ ] Shareholders
- [ ] Market regulators
- [x] The corporate charter/articles of incorporation
- [ ] Financial analysts
> **Explanation:** The number of unissued shares a company can hold is determined by the board of directors or founders and is stipulated in the corporate charter/articles of incorporation.
### Do unissued shares have voting rights?
- [ ] They can give voting rights if authorized by the corporation.
- [ ] Yes, they have equal voting rights as issued shares.
- [x] No, only issued shares have voting rights.
- [ ] Only if they are converted into proxy shares.
> **Explanation:** Unissued shares do not confer any voting rights to shareholders since they are not yet issued and held by any investors.
### Are unissued shares a liability for a company?
- [ ] Yes, as they are counted as debts.
- [x] No, they are not considered a liability.
- [ ] Only during financial reporting.
- [ ] Only if over a certain threshold.
> **Explanation:** Unissued shares are not considered a liability for a company. They are simply authorized shares awaiting potential future issuance.
### What is an example of a strategic reason a company may keep shares unissued?
- [ ] To avoid paying taxes.
- [ ] To provide immediate dividends.
- [x] To use in future mergers or acquisitions.
- [ ] To increase stock market price.
> **Explanation:** Companies might keep unissued stock as a reserve to be used in future strategic activities such as mergers and acquisitions, stock options, or other growth opportunities.
Thank you for exploring the intricacies of unissued stock and testing your knowledge with our quiz. Continue enhancing your understanding of corporate finance to become proficient in financial matters!
