What Are Authorized Shares?
When a company files its articles of incorporation with the government, it requests that a certain number of shares be authorized for future issuance. The approved application specifies the number of authorized shares that a corporation may issue over time as its business progresses. By securing the right to sell a total number of shares more than what it may need at present, a company avoids the inconvenience of going back to the government for more share authorization in the future.
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Authorized and Issued
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Authorized shares are the upper limit of the number of shares that a company can issue. Share authorization needs not be recorded in accounting books, because no capital contribution has been made by investors until the selling of shares later when funding needs arise. A company is unlikely to use up its authorized shares in one issuance; it's more typical for a company to apply them to multiple issues over the years. When a company sells some of its authorized shares, the shares sold are referred to as issued shares. Issued shares are recorded and often considerably less than the number of authorized shares.
Issued and Outstanding
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The shares outstanding are the issued shares that company shareholders hold. Some of the issued shares may not be held by shareholders anymore if the company has bought them back from shareholders after issuance in a share-repurchase program. Outstanding shares are either equal to or less than the number of shares issued and may never exceed the number of authorized shares. The difference between authorized shares and outstanding shares is the number of shares still available for shareholder issuance.
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Issued but Repurchased
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A company may repurchase previously issued shares from shareholders and hold them temporarily in the company's treasury-stock account for future reissuance. Repurchased shares as treasury shares are still considered issued shares, as a company can reissue them more conveniently without going through another initial issuing process. But repurchased shares reduce the number of outstanding shares because when held by the company, repurchased shares, or treasury shares, are no longer considered outstanding. Therefore, the difference between issued shares and outstanding shares is the number of a company's treasury shares, which remain authorized to be reissued in the future.
Repurchased but Retired
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A company may also repurchase shares but without the intention of reissuing them in the near future and thus choose to retire them back to the pool of unissued shares. The retired shares as unissued are still part of a company's total authorized shares, which comprise both issued and unissued shares. The number of authorized shares remains unchanged over the course of a company's share sales, repurchases and reissuances.
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