Can a Company Create More Shares of Stock?


Shares of stock represent ownership in a business. Businesses sell these shares to raise capital. Businesses can raise capital through loans, and most starting businesses raise funds through debt, but eventually firms prefer to raise money through equity as well, by selling ownership in the company. Stock allows the company to create capital through a stock offering. Within limits, companies can create and issue additional shares of stock.

Authorizing Shares

There is a large difference between authorizing shares and issuing shares. When a business incorporates, it files for authorization of a certain number of shares. These are the shares the business can legally create and issue. This does not mean they are issued, only that they are potential shares. A business can authorize shares and only issue some of them, saving another portion for a later issue, essentially creating more shares of stock.

Issuing Shares

Companies can choose to issue shares when they incorporate. This is known as an initial public offering (IPO). During this time, the company usually issues most of the shares that it has authorized for sale on the stock market. Typically, some shares are retained permanently, to fund employee stock plans or for other reasons. It is with this public issuing that the company raises most of the funds for its change to a corporation.

Addition Shares

If a company has authorized more shares than it has issued and has no other intended purpose for the authorized shares, it can make a new issuing to raise additional capital. However, many companies issue all the stock they can at the time of the IPO, and if they want to issue more stock, they have to authorize more. This requires changing the corporation's documents and requires approval of the board of directors. An additional issue also requires the general approval of shareholders.

Stock Splits

A stock issue should not be confused with a stock split. Issues actually release more stock for sale. A stock split divides stock already sold into smaller parts. A split cannot create new stock, and it does not result in the sale of additional shares for the company -- investors still retain ownership of the split stock, only in smaller portions equaling the same value. Companies split stock to make it more liquid and to encourage activity.

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