Definition:
Authorized stock is the maximum number of shares of stock that a corporation is legally authorized to issue, as specified in its articles of incorporation. It represents the total number of shares that the company can sell to investors.
Key points about authorized stock:
- Legal limit: Authorized stock sets the legal limit on the number of shares a company can issue.
- Issued stock: Only a portion of the authorized stock may be issued to investors.
- Unissued stock: The remaining shares are considered unissued and can be issued in the future.
- Capital structure: Authorized stock is a key component of a company’s capital structure.
Why is authorized stock important?
- Legal compliance: Companies must comply with the authorized-share capital specified in their articles of incorporation.
- Flexibility: It allows companies to raise additional capital by issuing more shares in the future if needed.
- Investor protection: Authorized stock can provide some protection to investors by limiting the number of shares that can be issued.
In essence, authorized stock is the maximum number of shares a corporation can issue, and it’s a crucial component of a company’s capital structure.
