SubscribeIs your Stock Outstanding?
Your Company likely has Authorized Stock, Issued Stock and Outstanding Stock and derivations of those. I see these terms getting mis-used often enough to want to clarify them below.
- Authorized – When you set up your company or recapitalized it, you authorized a certain number of shares. Since some states apply taxes based on the number of authorized shares, you may have authorized as few as 100. Larger, later-stage companies or those in states where the authorized shares do not relate to taxes may have 10's of millions of shares authorized. Authorized shares are those that are available to be issued. Companies may choose to authorize different classes of shares (Common or Preferred) but often this is done in connection with a financing event.
- Issued – The board of the company issues shares to investors, employees, board members and others for purposes of Employment, Incentives, Effort, Investment and/or in connection with Options (E-I-E-I-O.) When finance people talk about the value of the firm, one of the major components is the sum of the issued shares multiplied by their respective prices.
- Outstanding – Outstanding shares almost mirror issued shares and are often lumped together as "Issued and Outstanding". So what's the difference between Issued and Outstanding? Companies sometimes buy shares back from stockholders. Private companies, as part of their investor agreements, often have the right of first refusal to buy back stock should a shareholder wish to sell. The organization may even have this right if the shareholder dies, becomes insolvent or commits a felony. The company uses cash to buy back the shares, or a portion thereof and those shares become Treasury Stock – stock owned by the corporate entity.