Authorized stock, also known as authorized capital stock, authorized shares or authorized share capital, is the amount of authorized capital (shares) a company is allowed to issue to shareholders. This total is stated in its Articles of Incorporation (primary rules governing the management of a corporation that are filed with a regulatory agency).
In the United Kingdom, Ireland, India, Bangladesh, Pakistan and Sri Lanka, it (Articles of Incorporation) is called a Memorandum of Association.
In most cases, part of the authorized stock remains unissued. This gives businesses flexibility to issue additional shares as needed.
The total can be changed if the shareholders approve. The part of the authorized stock that a company has issued to shareholders is called its share capital.
The Companies Act 2006 in the UK abolished the concept of authorized share capital.
People often mistakenly think that authorized stock means the same as outstanding shares, it does not. Outstanding shares are the number of shares a company has issued to shareholders, i.e. its share capital.
All the authorized stock must be issued according to the guidelines that are provided when the company is incorporated.
When incorporating a company, it is best to include a potential for issuing shares that is greater than the amount that will initially be on sale to the public.
According to London South East, authorized share capital is:
“The maximum amount of share capital that a company can issue. The limit can be changed by a shareholder vote.”
Video – Authorized stock versus issued stock
In this video, Dan Ryan of Trinity Law Group talks about the difference between authorized stock and issued stock. He takes you through the basics of stock issuance by the shareholders in the charter, and discusses other concepts of stock ownership.