Legal Definitions - authorized stock

Authorized 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 or charter. This number is set when the company is formed and can only be changed through a formal amendment process, typically requiring a vote by shareholders and approval by the board of directors.

• Example 1: Startup Company Formation

  When "InnovateTech Inc." was founded, its founders decided to authorize 10,000,000 shares of common stock in their articles of incorporation. This means that, at any point, InnovateTech Inc. can issue up to 10,000,000 shares to raise capital or compensate employees, without needing to amend its foundational documents. Initially, they might only issue 1,000,000 shares to the founders and early investors, but the potential to issue the remaining 9,000,000 shares is already established by their authorized stock limit.

• Example 2: Company Seeking Additional Funding

  "Global Logistics Corp." initially authorized 50,000,000 shares when it went public. Over several years, it successfully issued all 50,000,000 shares to the market. Now, the company plans a major expansion and needs to raise significant new capital by selling more stock. Since they have already issued their entire authorized stock, Global Logistics Corp. must first amend its articles of incorporation to increase its authorized stock (perhaps to 75,000,000 shares) before they can legally issue any new shares to fund their expansion.

• Example 3: Strategic Reserve for Future Growth

  "BioPharma Solutions" has 200,000,000 shares of authorized stock. However, they have only issued 75,000,000 shares to the public and private investors. The remaining 125,000,000 authorized but unissued shares represent a strategic reserve. This allows BioPharma Solutions the flexibility to issue more shares in the future for purposes like employee stock option plans, acquisitions, or future capital raises, without the immediate need to go through the formal and often time-consuming process of increasing their authorized stock limit.