Issued Shares vs Outstanding Shares: Everything You Need to Know
An issued share is simply a share that has been given to an investor, whereas outstanding shares refer to all the shares that have been issued by a company. 3 min read
2. What Are Outstanding Shares?
Issued shares vs. outstanding shares have several differences. An issued share is simply a share that has been given to an investor, whereas outstanding shares refer to all the shares that have been issued by a company.
What Are Issued Shares?
An issued share is a share of stock that has been distributed by a company. In most cases, an issued share has been sold to an investor. A company, however, can also issue shares to its employees as an alternative to their typical compensation.
A company's Articles of Incorporation will authorize a certain number of shares to be issued. Companies are not allowed to issue shares beyond this number.
Multiple reasons a corporation might issue stock shares are:
- Acquiring cash from corporate investors.
- Obtaining another company by exchanging new shares for an ownership interest.
- Procuring services or assets.
- Rewarding or incentivizing corporate officers.
In some cases, a corporation will need or want to issue more shares than are allowed by their Articles of Incorporation. Before they can begin issuing new shares, the current shareholders would need to give their approval, and the number of authorized shares listed in the Articles of Incorporation would need to be increased.
A company's legal capital is often defined as the par value of a single stock share. In most cases, the par value of a stock will be very small. Usually, this amount has been specified in state law. When a company issues stock, the par value must be recorded. The amount will be documented in the company's general ledger in a separate equity account for stockholders.
What Are Outstanding Shares?
The term outstanding shares means the total amount of company stock that is currently owned by the corporation's stockholders. This can include restricted shares and share blocks. When an investment bank establishes the initial public offering (IPO) of a company, the bank will set a specific number of outstanding shares.
Outstanding shares can be increased several ways. First, there could be a secondary stock market offering. Second, the corporation may decide to give stock options to its employees as a form of payment. The owners of outstanding shares have the right to receive dividends and also have voting rights in the corporation.
Outstanding shares are an important part of calculating metrics for a corporation. In addition to market capitalization, outstanding shares can be used to calculate cash flow and earnings per share. You should be aware, however, that if you attempt to calculate earnings per share using outstanding share, your gains may be inflated.
When investors attempt to determine how well a company is performing, or examine its financial stability, it is important to have a solid understanding of the terms related to outstanding shares. With a large number of companies, their number of issued shares and outstanding shares will be the same.
The number of outstanding shares, however, can never be more than the number of issued shares. After a company has bought back investor's stocks, the shares that have been purchased will not be considered outstanding shares, although they are still issued shares.
The number of outstanding shares of a company will vary greatly over time. For instance, if the company decides to issue more shares, then its number of outstanding shares would naturally increase. Similarly, if the company institutes a program for repurchasing shares from investors, its outstanding shares would decrease.
In some cases, a company will own stock in itself. These shares are known as treasury stock. Unlike typical shares, treasury stock does not grant voting rights or the ability to receive dividends. If a company decides to sell treasury stock, those shares will convert to outstanding shares. However, this does not change the number of issued shares.
To calculate the exact number of outstanding shares, you can subtract the number of issued shares from treasury shares. In the balance sheet of a company, you can find the outstanding shares listed under Capital Stock.
Publicly traded companies must meet several reporting requirements, including listing company stock in their balance sheet. Generally, the company will need to provide information on their outstanding and issued shares on their website or on the website of a local stock exchange.
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