Authorized shares

Authorized shares: The number of shares of stock that a company is authorized to issue, as stated in its articles of incorporation.

A Scenario : Understanding Authorized shares

John and his friend, Tom, are looking to start a new technology company that develops innovative software solutions. They decide to form a corporation and are in the process of incorporating the company.

As part of the incorporation process, they need to determine the number of shares they want to authorize for issuance. Authorized shares refer to the maximum number of shares a corporation is allowed to issue, as specified in its charter or bylaws.

After reviewing their business plan and considering the potential future growth of the company, John and Tom decide to authorize 100 million shares.

They believe that this will give them enough flexibility to issue new shares in the future to raise capital, incentivize employees, or for other purposes.

However, they also want to ensure that the ownership structure of the company remains stable, so they decide to issue only 10 million shares initially, with the remaining 90 million shares held in reserve for future issuance.

This allows them to keep control of the company and avoid dilution of their ownership.

With the authorized shares determined, John and Tom move forward with incorporating the company and issuing the initial 10 million shares. They are confident that this structure will provide them with the flexibility they need to grow the company while preserving their ownership and control.