Difference between Authorized and Outstanding Shares

While talking about share capital of a company it is important to recognize the difference between authorized shares and outstanding shares, because knowledge of it helps the investors in taking decision whether to invest in a company or not. Let’s look at the difference between the two

Authorized shares refer to the maximum number of shares that a company can issue to the shareholders. It is the share capital which the company is authorized to issue by its memorandum of association and it can only be increased and decreased through a vote by the shareholders. So for example if the memorandum of association of the company provides that 1 million shares are authorized then a company can issue 1 million shares only and not more unless it takes prior approval of shareholders through voting.

While authorized share provides the upper limit beyond which company cannot issue the shares, while outstanding shares refer to the number of stocks that a company actually has issued to the shareholders. It is always less than the authorized shares. In other words it represents the total number of shares that can be bought and sold by the public in the stock market.

A company which has low number of outstanding shares will not have enough liquidity when it comes to trading of stock in stock market and hence investor will not be able to buy or sell it easily because of low liquidity.

In simple words authorized share can be compared to a glass of water which is full while outstanding shares can be compared to a half filled glass of water.

0 comments… add one

Leave a Comment

Related pages

discounting a billhorizontal analysis accountingretail banking vs wholesale bankingexplain capmdistinguish between capital expenditure and revenue expendituremeaning of drawer drawee and payeedemerits of social networkingscarce goods examplestypes of contingent liabilitiesdefinition of conglomerate in economicsmateriality concept in accountingadvantages and disadvantages of credit and debit cardswhat is bearer chequeadvantage and disadvantage of perfect competitionaccumulated depreciation examplediscounting billwhat does the law of diminishing marginal utility stateaudit evidencesfeatures of autocratic leadershipadvantages and disadvantages of short term financingdifference between term loan and overdraftexamples of derivative securitiesfull form of fmcg productsoverdraft and cash creditebit equationdisadvantages of capitalismdisadvantages of low cost strategyconsignor consigneeskim pricing examplesdictatorship advantagesbearer cheque and order chequesouth africa mixed economy systemexamples of cash inflowunqualified audit opinionadvantages and disadvantages of promotional pricingadvantages of a planned economyfactoring vs discountingadvantages and disadvantages of zero based budgetingentry for prepaid expenserevaluation entriesdistinguish between socialism and capitalismunsystamatic riskexamples of mixed economic systemstock market advantages and disadvantagessubstitutes in economics examplesmeaning of monopolistic competitionfdi abbreviationimportance of capital budgeting decisionseconomics substitutes and complementsinterest rate subventionmeaning of demand loanmonopolistic comphorizontal merger examplesforfaiting vs factoringwhat is a bearer chequedisadvantages globalizationtutor2u perfect competitiondefinition of current assets and current liabilitieszero based budgeting advantages and disadvantagesfright means in hindicreditors journal entrycalculation of net worth of companyadvantage and disadvantage of traditional economymerits and demerits of capital budgetingimportance of mixed economydeferred revenue journal entryrental income journal entrydifference between joint venture and partnershipdisadvantage of vertical integrationdisadvantages of commodity moneywhat are the pros and cons of international tradeadvantages and disadvantages of inventory