The difference between authorized and outstanding shares

Authorized shares are the number of shares that a corporation is legally allowed to issue, while outstanding shares have already been issued. Thus, the number of outstanding shares is always equal to or less than the number of authorized shares. The number of authorized shares is initially set in a company's articles of incorporation. The shareholders can increase the number of authorized shares at any time at a shareholders meeting, as long as a majority of shareholders vote in favor of the change. The number of authorized shares may be kept substantially higher than the number of outstanding shares, so that the organization has the flexibility to sell more shares at any time.

Several activities can increase the number of outstanding shares. For example, shares may be issued via a private placement, an initial public offering, a secondary offering, as a stock payment, or when someone exercises a warrant or option. The number of outstanding shares declines when a company buys back shares (which are then known as treasury stock).