Key Takeaways

  • Issued shares include all shares a company has created and granted to shareholders, including treasury stock.
  • Outstanding shares represent shares currently held by investors and do not include treasury shares.
  • Companies cannot issue more shares than authorized without shareholder approval and amending their charter.
  • Treasury shares reduce the outstanding share count but not the issued count.
  • Fully diluted shares, while not issued yet, represent future potential ownership.
  • Understanding issued vs outstanding shares is crucial for calculating market cap, earnings per share (EPS), and shareholder control.

Issued vs Outstanding Shares

Authorized shares are the total number of shares a company can ever issue to owners or employees or sell to outside investors, as determined by their Articles of Incorporation. Shares are authorized and then become issued or unissued. Shares issued, whether through a grant or purchase, and not held by the company are then known as outstanding shares. Unissued shares factor into the total number of authorized shares and are often reserved by the company for issuance to employees or sale to investors.

The main difference between Issued shares and outstanding shares is that issued shares are shares of a company that have been given to or are owned by an investor or company employee, whereas outstanding shares refer to all the shares that have ever been issued by a company, aka issued shares, minus the number of shares currently in the company’s treasury. 

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, and at this point, the share becomes an outstanding share as well. A company can also issue shares to its employees as an alternative or in addition to their normal compensation. A company’s issued shares count includes any shares that a company has bought back from investors or employees and holds in its own treasury. 

A company's Articles of Incorporation authorizes the total number of shares that can be issued. Companies are not allowed to issue shares beyond this number.

There are multiple reasons a corporation might issue stock shares, including:

  • Corporate investors have put cash into the business in exchange for an ownership share.
  • Obtaining another company by exchanging new shares for an ownership interest.
  • Procuring services or assets.
  • Rewarding or incentivizing corporate officers.

Finally, unissued shares are shares that have been created but have not yet been issued either to employees or in a future financing round.

How Can A Company Issue More Shares Than Authorized?

In some cases, a corporation will need or want to issue more shares than currently authorized by their Articles of Incorporation. Before they can begin issuing new shares, the current shareholders need to give their approval and the number of authorized shares listed in the Articles of Incorporation will need to be increased.

What Are Outstanding Shares Of Stock?

Outstanding shares are the total amount of company stock that has ever been issued and is currently owned by the corporation's stockholders, or any external party. This can include restricted shares and share blocks. 

With most companies, the number of issued shares and outstanding shares is the same. In larger companies, however, issued shares may be higher than outstanding shares for a variety of reasons including buybacks or unissued shares.

The owners of outstanding shares have the right to receive dividends and also have voting rights in the corporation.

Treasury Shares and Share Buybacks

When a company repurchases its own shares, those shares become treasury stock and are no longer counted as outstanding, though they remain part of issued shares. Treasury shares:

  • Do not have voting rights
  • Do not receive dividends
  • Can be reissued or retired

Share buybacks reduce the number of outstanding shares, which can increase EPS and potentially the share price. However, they do not reduce the issued share count unless the shares are permanently retired.

How Are Outstanding Shares Calculated?

The number of outstanding shares is calculated by subtracting the number of shares held in treasury or that have not yet been issued, also called unissued shares, from the number of shares held by outside parties.

For example, after a company has bought back investor's stocks, the shares that have been purchased will no longer be considered outstanding shares, although they are still issued shares.

You can find a company’s outstanding shares count listed under Capital Stock on the company’s balance sheet.

Can Outstanding Shares Exceed Issued Shares?

The number of outstanding shares will never exceed the number of issued shares, because outstanding shares are a subset of issued shares.

The number of outstanding shares of a company can vary greatly over time. For instance, if the company decides to issue more shares, then its number of outstanding shares will naturally increase. Similarly, if the company institutes a program for repurchasing shares from investors, known as a buyback, its outstanding shares will decrease.

How a Company Treasury Relates to Issued or Outstanding Shares

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. 

Common Misconceptions About Issued and Outstanding Shares

It's easy to confuse the terms "issued" and "outstanding," especially when companies conduct buybacks or issue new shares. Here are some common misunderstandings:

  • Myth: Issued shares are always the same as outstanding shares.
    Reality: Treasury stock is part of issued shares but not outstanding shares.
  • Myth: Outstanding shares can exceed issued shares.
    Reality: This is not possible because outstanding shares are a subset of issued shares.
  • Myth: Fully diluted shares are already issued.
    Reality: Fully diluted shares include potential shares that may be issued in the future under various agreements.

How Does The Number of Outstanding Shares Increase?

Outstanding shares can be increased in a few ways. This happens either when newly authorized shares are sold, or unissued shares are issued.

First, there could be a secondary stock market offering such as a new round of outside funding or unissued shares being sold to existing investors or employees. 

Second, the corporation may decide to give stock options to its employees as a form of payment. 

Outstanding Shares and Initial Public Offerings (IPOs)

When an investment bank establishes the initial public offering (IPO) of a company, the bank will state the specific number of outstanding shares.

Outstanding shares are an important part of how investors calculate 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 counts, the numbers may be inflated.

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.

Understanding Fully Diluted Shares

Fully diluted shares represent the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, warrants, convertible notes, and other convertible securities, were exercised. This number provides a more complete picture of a company’s potential equity structure and is especially relevant in startup financing, IPO valuations, and investor negotiations.

Key instruments that contribute to fully diluted shares include:

  • Employee stock options (ESOs)
  • Convertible preferred stock
  • Convertible debt
  • Warrants

Why It Matters:Fully diluted shares give potential investors and founders insight into the actual ownership stake they could end up with once all claims on equity are realized. This is crucial for accurate valuation, especially when calculating fully diluted EPS and ownership percentage.

Impact of Issued vs Outstanding Shares on Valuation Metrics

Understanding the distinction between issued vs outstanding shares is essential for analyzing key financial metrics:

  • Market Capitalization is typically calculated using outstanding shares, not issued shares:
    Market Cap = Share Price × Outstanding Shares
  • Earnings Per Share (EPS) relies on outstanding shares, particularly weighted average shares outstanding during a reporting period:
    EPS = Net Income / Outstanding Shares
  • Book Value Per Share may use either issued or outstanding shares, depending on whether treasury stock is included.

Investors must pay attention to whether a company is reporting basic EPS (based on current outstanding shares) or diluted EPS (which includes fully diluted shares).

Frequently Asked Questions

  1. What’s the main difference between issued and outstanding shares?
    Issued shares include all shares a company has created and given out, while outstanding shares are those currently held by investors and not held as treasury stock.
  2. Can a company have more outstanding shares than issued shares?
    No. Outstanding shares are a subset of issued shares and therefore cannot exceed them.
  3. What are fully diluted shares and why are they important?
    Fully diluted shares account for all potential shares that could be issued, giving a complete picture of future ownership and dilution.
  4. How do share buybacks affect issued and outstanding shares?
    Buybacks reduce the number of outstanding shares but not the issued shares—unless the company retires the repurchased shares.
  5. Why do investors care about outstanding shares?
    Because outstanding shares determine ownership, voting power, dividend eligibility, and key metrics like market cap and EPS.

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