Authorized Shares vs. Issued Shares

What Authorized Shares Are

Authorized shares are the total number of shares of stock a corporation is permitted to issue under its articles (or certificate) of incorporation. This number is set when the corporation is formed and filed with the state's corporate filing office. A corporation cannot issue more shares than its authorized total without first filing an amendment to increase that number, which typically requires board and shareholder approval and an additional state filing fee.

What Issued Shares Are

Issued shares are the shares a corporation has actually transferred to a shareholder, founder, employee, or investor, in exchange for cash, property, services, or other value. Issued shares are always less than or equal to authorized shares. A newly formed corporation with 10,000,000 authorized shares might issue only 8,000,000 at formation, split among founders, while the remaining 2,000,000 stay unissued.

Issued vs. Outstanding Shares

Issued shares and outstanding shares are related but not identical. Outstanding shares are issued shares still held by shareholders; if a corporation buys back and holds shares in its own treasury, those shares remain issued but are no longer outstanding. For most early-stage corporations that haven't repurchased stock, issued and outstanding shares are the same number.

Why Corporations Authorize More Than They Issue

Corporations routinely authorize more shares than they plan to issue right away, for a few practical reasons. An unissued reserve lets the corporation grant equity to new employees through an option pool without a separate authorization filing each time. It also leaves room to issue new shares to investors in a future financing round, or to do a forward stock split later, without amending the articles of incorporation again. Because authorizing shares costs little or nothing beyond the initial filing fee in most states, corporations and their attorneys often authorize a round number, such as 10,000,000 shares, well above what they expect to issue in the first year or two.

How the Numbers Appear in Your Formation Documents

Your articles of incorporation state the total authorized shares and, if applicable, the par value per share or a statement that the shares have no par value. Your stock ledger, a required corporate record, tracks which of those authorized shares have actually been issued, to whom, and for what consideration. A capitalization table (cap table) goes a step further, showing both issued and authorized shares alongside each shareholder's percentage ownership and any outstanding options reserved from the unissued pool.

Why the Distinction Matters for Fundraising

Investors and option holders care about both numbers. Authorized shares show the maximum dilution theoretically possible if every unissued share were granted. Issued and outstanding shares show actual current ownership. A term sheet or cap table that doesn't clearly separate the two can make a company's ownership picture look different than it actually is, which is why clean stock records matter well before you talk to an investor.

Delaware Franchise Tax Ties Directly to This Distinction

For a Delaware corporation, authorized shares (not issued shares) drive the default Authorized Shares Method of calculating franchise tax, according to the Delaware Division of Corporations. A corporation with a large authorized share count and low or no par value can instead calculate its tax under the Assumed Par Value Capital Method, which factors in issued shares and total gross assets and often produces a far lower bill. See our guide on how many shares a startup should authorize for how the two methods compare.

Changing Either Number Later

Increasing authorized shares requires amending the articles of incorporation, a board resolution, often a shareholder vote, and a state filing fee. Issuing more shares, up to the authorized limit, requires only a board resolution approving the issuance and updating the stock ledger; no state filing is required unless the issuance pushes the total above what's authorized.

Don't Authorize Too Few Shares Early On

Setting authorized shares too low at formation is one of the more common early mistakes, because it forces a formal amendment, state filing fee, and sometimes shareholder approval just to onboard a new hire's equity grant or close a financing round. Many startups authorize significantly more shares than they plan to issue in year one specifically to avoid this.

Par Value Affects More Than You'd Expect

The par value assigned to authorized shares (often a fraction of a cent, or no par value at all) interacts with state franchise tax calculations, particularly in Delaware, and can also affect how founder stock purchases are recorded on the books. Talk to a startup-experienced accountant or attorney about par value before you file, rather than defaulting to whatever a template suggests.

Keep Your Stock Ledger Current

The stock ledger is the authoritative record of who holds how many issued shares, and it needs to be updated every time new shares are issued, whether to a founder, an employee exercising an option, or an investor. An outdated stock ledger is a common item flagged in investor due diligence.

This Is Not Legal or Tax Advice

How many shares to authorize, what par value to assign, and how to structure an option pool all depend on your specific plans for fundraising, hiring, and exit. Talk to a business attorney before finalizing your articles of incorporation, and a tax professional about any tax issues tied to how shares are issued or priced.