authorized, issued, and outstanding shares
Think of a company's shares like seats it is allowed to print tickets for. The charter sets a ceiling — the most tickets it may ever print. From that ceiling it actually prints some and hands them to investors. Later it might buy a few tickets back and hold them. To describe ownership precisely, accountants use three nested counts: authorized, issued, and outstanding shares. They sound alike but mean different things, and mixing them up leads to wrong calculations.
Authorized shares are the maximum number the corporate charter permits the company to issue — a legal cap, often far larger than what is actually sold, leaving room to grow. Issued shares are the ones the company has actually given out to investors at some point. Outstanding shares are the issued shares that are still held by investors right now — that is, issued shares minus any treasury stock (shares the company bought back and is holding). For example, a firm authorized for 1,000,000 shares might have issued 600,000 and then repurchased 50,000, leaving 550,000 outstanding. The funnel always narrows: authorized is greater than or equal to issued, which is greater than or equal to outstanding.
These distinctions matter because per-share figures must use the right count. Earnings per share, dividends per share, voting power, and book value per share are all based on shares outstanding — not authorized, and not issued. A classic error is dividing by authorized shares, which makes per-share numbers look far too small. Only the shares actually in investors' hands receive dividends and cast votes; treasury shares sit dormant and do neither.
A firm is authorized for 1,000,000 shares, has issued 600,000, and holds 50,000 in treasury. Outstanding shares are 600,000 minus 50,000 equals 550,000. If it declares a 1 per share dividend, it pays 550,000 — only the outstanding shares get paid, never the treasury shares.
Outstanding equals issued minus treasury — the count that actually earns dividends and votes.
Per-share figures use shares outstanding, not authorized or issued. Authorized greater-than-or-equal issued greater-than-or-equal outstanding; treasury stock is the gap between issued and outstanding.