What are Authorized Shares?

Authorized shares are the number of shares that a corporation is legally allowed to issue. The number of authorized shares is initially set in a company's articles of incorporation. The shareholders can increase the number of authorized shares at any time at a shareholders meeting, as long as a majority of shareholders vote in favor of the change.

What are Outstanding Shares?

Outstanding shares have already been issued. Several activities can increase the number of outstanding shares. For example, shares may be issued by any of the following actions:

• A private placement

• An initial public offering

• A secondary offering

• A stock payment

• When someone exercises a warrant or option

The number of outstanding shares declines when a company buys back shares (which are then known as treasury stock ).

When a company goes public, the number of outstanding shares is set by the lead investment bank that is in charge of the initial public offering.

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Comparing Authorized and Outstanding Shares

The number of outstanding shares is always equal to or less than the number of authorized shares. The number of authorized shares may be kept substantially higher than the number of outstanding shares, so that an organization has the flexibility to sell more shares at any time, depending on its financing needs.