why a company might not issue all of its authorized shares
the number of authorized shares is typically higher than those actually issued which allows the company to offer and sell more shares in the future if it needs to raise additional funds for example if a company has 1 million authorized shares it might only sell 500 000 of the shares during its initial public offering ipo the company might reserve 50 000 of authorized stock as stock options to attract and retain employees it might sell 150 000 more in a secondary offering to raise more money in the future the unissued stock that will be retained in the company s treasury account will be 1 million 500 000 50 000 150 000 300 000 another reason a company might not want to issue all of its authorized shares is to maintain a controlling interest in the company and prevent the possibility of a hostile takeover example of authorized stockamazon s corporate charter for example states that the company s total authorized stock shall include 5 billion shares of common stock and 500 million shares of preferred stock the charter permits amazon to increase its authorized stock if there isn t enough unissued common stock to allow for the conversion of preferred stock 1 corporate charters often require shareholder approval to increase the number of shares of authorized stock an investor might want to know how many authorized shares a company has in order to analyze the potential for stock dilution dilution reduces a stockholder s share of ownership and voting power in a company and reduces a stock s earnings per share eps following the issue of new stock the larger the difference between the number of authorized shares and the number of outstanding shares the greater the potential for dilution 