Authorized Shares

When a company is formed, its charter or articles may set a ceiling on how many shares it can issue. The company does not have to issue all of them. Keeping a buffer of unissued shares allows it to raise money, reward employees or make acquisitions in future without changing its documents.

For example, a company might have 100,000,000 authorized shares, of which 60,000,000 have been issued. If it has bought back 5,000,000 and holds them as treasury shares, 55,000,000 are outstanding in the hands of investors.

Increasing the number of authorized shares usually requires shareholder approval, which gives shareholders some protection against excessive dilution.

The concept is especially important in the United States, where state corporate law requires companies to state their authorized shares. In some other countries, such as the United Kingdom, companies are no longer required to have an authorized share limit, although directors still need shareholder approval to issue new shares.