Legal Definitions - authorized capital stock

Authorized capital stock refers to the maximum number of shares a corporation is legally permitted to issue to investors, as specified in its foundational legal documents, such as its articles of incorporation. This number acts as a ceiling; a company cannot issue more shares than its authorized capital stock without formally amending these documents. It represents the total potential ownership units that a company could distribute, even if it has not yet issued all of them.

• Example 1: A Startup's Initial Setup

  When "Quantum Innovations Inc.," a new software development company, is formed, its founders file articles of incorporation with the state. These documents state that Quantum Innovations Inc. is authorized to issue 50,000,000 shares of common stock. Initially, the company only issues 10,000,000 shares to its founders and early investors to get started.

  This illustrates that the 50,000,000 shares represent the company's authorized capital stock. Even though only a fraction (10,000,000) has been issued, the company has the legal capacity to issue up to 40,000,000 more shares in the future without needing to amend its foundational documents.

• Example 2: An Established Company Seeking Expansion Capital

  "Global Logistics Corp." has 100,000,000 shares of authorized capital stock, and it has already issued 95,000,000 shares over its many years of operation. To fund a major new international expansion project, the company decides to raise additional capital by issuing another 15,000,000 shares to new and existing investors.

  In this scenario, Global Logistics Corp. only has 5,000,000 shares remaining under its current authorized capital stock (100,000,000 authorized - 95,000,000 issued). Therefore, it cannot issue the full 15,000,000 new shares without first amending its articles of incorporation to increase its authorized capital stock. This highlights that the authorized amount is a strict legal limit.

• Example 3: Differentiated Stock Classes

  "BioTech Solutions Inc." has its authorized capital stock divided into two distinct classes: 200,000,000 shares of common stock and 20,000,000 shares of preferred stock. Each class has different voting rights and dividend preferences, as detailed in the company's charter.

  This example demonstrates that authorized capital stock can be specified for different types or classes of shares, each with its own maximum limit. The company can issue up to 200,000,000 common shares and up to 20,000,000 preferred shares, but it cannot exceed either of these limits without a formal amendment to its corporate documents.