What is authorised shares?
Authorised shares refer to the maximum number of shares a company is legally allowed to issue, as defined in its articles of incorporation or corporate charter.
This number represents the upper limit of shares a company can offer to investors, but it does not mean all of these shares are issued immediately.
In simple terms, authorised shares are the total number of shares a company is permitted to create.
How authorised shares work
When a company is formed, it sets a fixed number of authorised shares in its legal documents.
These shares act as a ceiling, meaning:
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The company cannot issue more shares than this limit
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Shares can be issued gradually over time
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Any unused shares remain unissued
Companies often choose a larger number to allow flexibility for future funding, employee stock options, or business expansion.
If a company needs more shares beyond the authorised limit, it must obtain shareholder approval to increase this number.
Authorised shares vs issued shares
Authorised shares are often confused with issued shares, but they have different meanings.
Key difference:
A company can only issue shares up to its authorised amount, but not all authorised shares are issued at once.
Why companies authorise more shares than issued
Most companies authorise more shares than they initially issue for strategic reasons.
This allows them to:
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Raise additional capital in the future
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Offer shares as employee compensation
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Use shares for mergers or acquisitions
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Avoid frequent shareholder approvals
Keeping unissued shares provides flexibility and control over the company’s capital structure.
However, issuing more shares later can lead to dilution, meaning existing shareholders may own a smaller percentage of the company.
Example of authorised shares
Suppose a company has:
This means:
This structure helps the company plan for growth while maintaining control over its share distribution.
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