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Finance: What is Authorized Stock? 2 Views
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Description:
What is Authorized Stock? Authorized stock is the amount of common stock that a company can issue. A company’s shareholders have to approve any changes to authorized stock, so companies keep the number of shares in their IPO a lot lower than the authorized stock number so they can issue more and do things like pay options.
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Transcript
- 00:00
finance a la shmoop what is authorized stock... well when a company goes
- 00:08
public and gets all incorporated well it changes legal status and part of it [People in a meeting]
- 00:13
means having lots of meetings and signing more paperwork than most of us
- 00:17
see in a lifetime well one of those pieces of paper is a charter or legal [Legal document appears]
- 00:22
document which outlines a whole bunch of rules including the number of shares a
Full Transcript
- 00:27
company can issue well this number of shares is called authorized stock [Document stamped authorized stock]
- 00:33
because it's the maximum total number of shares the company is authorized by its
- 00:39
charter to issue ....well let's say company XXX wants to buy company Y it's like a
- 00:47
genetic coding industry... company XXX has an authorized
- 00:52
limit of a hundred million shares and currently has 85 million shares and five
- 00:57
million options yet unvested outstanding technically it has 90 million shares
- 01:03
outstanding..... it wants to
- 01:06
print shares to buy company Y but company Y wants 20 percent of the [Company XXX printing stock]
- 01:11
primary shares of the company XXX or 17 million shares no primary does not
- 01:18
include options all right well company XXX cannot print enough share to buy Y [Shares printing]
- 01:22
why? because it needs to get approval to change the charter and that is only
- 01:29
doable by a majority vote of the outstanding shares at the time right and
- 01:33
it's mostly common shareholders who will own those all right well the company has
- 01:36
to have authorized shares to be able to make that transaction you know happen so
- 01:41
that's authorized stock and now you know it isn't just stock that's been approved
- 01:45
by you Mark Twain [Mark Twain sitting at a desk with stock]
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