Authorized shares
Also called: authorized share capital, authorized common stock, share authorization
The maximum number of shares a company's charter allows it to issue; shares outstanding plus shares reserved for warrants, convertibles and plans cannot exceed it.
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What it is
A company's certificate of incorporation sets how many shares of each class it may issue. Shares actually issued and held by investors are outstanding. Companies also reserve authorized shares for outstanding warrants, convertible securities and equity incentive plans. The gap between authorized and (outstanding plus reserved) is how much room the company has for new issuance without changing its charter.
Why it matters
- A ceiling on dilution. A company cannot sell more shares than are authorized and unreserved. Financing agreements often require the company to reserve a multiple of the shares needed for conversions.
- Increases need a vote. Raising the authorization usually requires a charter amendment approved by shareholders, which appears in a proxy statement. A proposal to increase authorized shares is a strong hint about planned issuance.
- Reverse splits create room. A reverse split that does not proportionally reduce the authorized count leaves far more unissued shares available.
Worked example
Hypothetical: Company X has 100,000,000 authorized shares, 80,000,000 outstanding and 15,000,000 reserved for warrants and its equity plan. Only 5,000,000 are available. It then completes a 1-for-10 reverse split without changing the authorization: outstanding becomes 8,000,000, reserves become 1,500,000, and 90,500,000 shares are available, about 11 times the new outstanding count.
How to spot it
The balance sheet equity section and the equity footnote of a 10-Q or 10-K state authorized, issued and outstanding shares. Proxy statements (DEF 14A, PRE 14A) contain proposals to increase the authorization, and an 8-K under Item 5.03 reports the charter amendment. See Share authorization increases.
Related terms
Guides that use this term
Dilution 101 · 6 min read
Equity Lines of Credit (ELOCs): Why Up to $50 Million Is Not $50 Million
How an equity line of credit works, and why share caps, volume limits, ownership blockers and price declines usually keep proceeds far below the headline.
Dilution 101 · 5 min read
Float vs Shares Outstanding: Three Different Numbers and When Each Matters
Why shares outstanding, non-affiliate float and tradeable float differ, where each comes from in SEC filings, and how the choice changes the math.
Dilution 101 · 6 min read
Authorized Share Increases: Reading the Proxy Vote Before the Dilution
What authorized shares are, why companies ask shareholders to increase them, how to calculate real headroom, and how reverse splits change the math.
Toxic financing · 6 min read
The Reverse Split Dilution Cycle: Split, Register, Convert, Repeat
How reverse splits, resale registrations and convertible financings can repeat in a cycle, with a timeline and a worked share-count example.
Core forms · 6 min read
Proxy Statements (PRE 14A, DEF 14A): Reverse Split and Share Increase Votes
How proxy statements work, why a preliminary proxy flags a charter change, and how reverse-split and authorized-share proposals are counted.
Corporate events · 7 min read
Reverse Splits Explained: Mechanics, Fractional Shares and the 1:250 Cap
How a reverse stock split works, what happens to fractional shares and the CUSIP, why companies do it to meet bid-price rules, and Nasdaq's limits.