Authorized capital stock definition
/What is Authorized Capital Stock?
Authorized capital stock is the maximum number of shares that a corporation is legally allowed to issue. This restriction applies to both common stock and preferred stock. The number of authorized shares is initially set in a company's articles of incorporation, and can be increased thereafter if a majority of the shareholders approve of the change. The number of authorized shares is usually kept relatively high, so that management has the option to sell additional shares to investors on short notice.
The restricted shares issued by a business are included in the total amount of authorized capital stock.
Presentation of Authorized Capital Stock
The number of authorized shares is disclosed in a company's financial statements, along with the number of outstanding shares. A sample presentation is as follows:
The Company is authorized to issue up to 50,000,000 shares of common stock with a par value of $0.01 per share. As of December 31, 20XX, 15,000,000 shares were issued and outstanding. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders and are entitled to receive dividends when and if declared by the Board of Directors.
Another presentation of authorized capital stock, this time for preferred stock, is as follows:
The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.01 per share. The Board of Directors is authorized to determine the rights, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, redemption privileges, and liquidation preferences. As of December 31, 20XX, no shares of preferred stock were issued or outstanding.