Definition of Outstanding Shares of Stock

The number of company shares in the hands of investors is called shares outstanding.

The number of company shares in the hands of investors is called shares outstanding. When a corporation is organized, its Articles of Incorporation stipulate the maximum number of shares it can issue, called authorized stock. But it may not issue all the shares at once. In fact, most companies prefer to sell stock periodically to raise funds as needed. The number of shares thus sold to investors represents shares outstanding.

Number of Shares Outstanding Can Vary

The maximum number of authorized stock cannot be changed without shareholder approval. But the number of shares outstanding can increase or decrease as a corporation issues or buys back its shares; or insiders exercise their stock options.

Issued vs. Outstanding

Shares outstanding exclude the issued shares that a corporation later bought back in the open market.

Per Share Numbers

Shares outstanding are used to calculate various per share numbers. For example, earnings per share are calculated by dividing a company's net earnings by the number of shares outstanding.

References

• PassTrak Series 7 General Securities Representative License Exam Manual; 2003