What are Authorized Shares?
State law specifies that shares of stock in the corporation will be issued under the direction of the board of directors. But, since the corporation is set up to benefit the shareholders, the shareholders set, or limit, the number of shares the directors are “authorized”, or allowed, to issue. Since the directors are not allowed to issue shares without authorization from the shareholders, the number of authorized shares is equal to the number of total shares.
The authorized shares are the total number of shares set out in the Articles of Incorporation. This term is only applicable to corporations. After incorporation, the Board of Directors is responsible for determining if and when to issue the authorized shares. A great deal of the authorized shares will be issued at the start of the company, but the remaining authorized shares may be issued at later dates. However, there is no requirement that the total number of authorized be issued at some date.
A corporation’s Articles of Incorporation specify the maximum number and type of shares the corporation is authorized to issue. Since corporations do not have to issue the number of shares authorized, Issued Shares can be fewer than, but never more than, the Authorized Shares. A corporation would have to have issued at least one share of stock. In some states the number of authorized shares can affect fees and taxes.
