Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Law, Transactions, & Risk Management
  • Business Entities, Corporate Governance & Ownership

Authorized Shares - Explained

What are Authorized Shares of a Company?

Written by Jason Gordon

Updated at April 15th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What are Authorized Shares?How Many Shares should a Corporation Authorize?Academic Research

What are Authorized Shares?

A business is capitalized by capital contributions from shareholders and retained earnings from operations. Shareholders receive shares of the corporation (representing an ownership interest in the corporation) in return for their contributions. To distribute shares, the corporation must authorize those shares. This is done in the articles of incorporation. 

The articles will simply state how many shares are authorized for distribution by the board and the classes of authorized shares. Subsequently, the board of directors will distribute those shares as part of a subscription agreement (agreement to invest funds in exchange for stock shares) or pursuant to a stock compensation plan to employees of the corporation.

The requirement that the articles of organization authorize the classes and number of shares is a state law designed to protect shareholders. Shareholders must vote to change the articles of incorporation. It cannot be done unilaterally by the board. 

While the board may vote to issue any of the authorized shares, it cannot go further than that. This protects shareholders against dilution of their ownership interest by board action beyond issuance of the authorized shares.

Back to: Business Transactions

How Many Shares should a Corporation Authorize?

There is no required or set number of shares to authorize. Corporations will use the authorized shares in future rounds of equity offerings and for employee compensation. It is important to offer enough shares to fulfill these objectives.

One thing to account for is that some states assess franchise taxes based upon the number of shares authorized.

Back to: Entrepreneurship

Related Topics

  • Corporate Charter
  • Shareholder Register
  • Common Stock
  • Preferred Stock
  • Par Value
  • Authorized Shares
  • Issued Shares of Stock
  • Unissued Shares of Stock
  • Outstanding Shares
  • Institutional Shares
  • Dual Class Shares




authorized shares number of shares authorized stock

Was this article helpful?

Yes
No

Related Articles

  • Back-End Plan - Explained
  • Composition of Board of Directors - Explained
  • Founder's Agreement - Explained
  • Overview of the Board of Directors - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand