Understanding Ownership in a Company with Non-Issued Shares

The concept of ownership in a publicly traded company is often straightforward: if you own 10 shares, you own a specific percentage of that company. However, the picture can get more complex when a company has non-issued shares. Delving into the nuances of authorized, issued, and outstanding shares is crucial for accurate understanding of your ownership stake.

Authorized Shares vs. Outstanding Shares

When you own 10 publicly traded shares, your ownership percentage is based on the outstanding shares, which includes both institutional and retail holdings. However, if the company has a large number of authorized but non-issued shares, the picture can become more nuanced.

Authorized Shares

Authorized shares are the total number of shares a company is legally permitted to issue. This number is specified in the company's corporate formation documents and can be adjusted through a vote of the board of directors. These shares could either be issued or remain non-issued. If a share is only authorized but not issued, it does not yet have an owner.

Issued Shares

Issued shares are the actual shares that have been sold to shareholders, both institutional and retail. Each issued share has an owner, and issued shares can be further categorized into two types: outstanding and treasury shares.

Outstanding Shares

Outstanding shares are the issued shares that are owned by all shareholders, excluding shares held in the company's treasury. These are the shares that contribute to the percentage of ownership you refer to when you state that you own 10 shares.

Treasury Shares

Treasury shares are issued shares that have been taken back by the company through the repurchase process. These shares remain authorized but are no longer considered outstanding as they are temporarily held by the company's treasury. Even though these shares are no longer outstanding, they still have an owner, the corporation itself.

Ownership Dilution and Future Share Issuances

When a company issues additional shares, your ownership percentage in the company decreases, a phenomenon known as dilution. This is because the total number of outstanding shares increases, reducing the percentage each shareholder holds. This can happen if the number of authorized but non-issued shares is significant, as the company could issue these non-issued shares in the future, further diluting your ownership stake.

Key Takeaways

Authorized Shares: This is the maximum number of shares the company can issue, but not all of these shares have to be issued. Issued Shares: These are the actual shares sold, which can be divided into outstanding and treasury shares. Outstanding Shares: These are the issued shares held by shareholders, excluding treasury shares. Treasury Shares: These are issued shares held by the company itself, not available for public trading. Ownership Dilution: Additional share issuances can decrease your ownership percentage.

In summary, while you can accurately say you own 10 of the outstanding shares, this does not necessarily mean you own 10 of the entire company, especially if there are many non-issued shares that could be brought into circulation. The actual ownership percentage would depend on the total number of authorized shares and any future share issuances.

It's important to stay informed about the total number of authorized shares and the current state of issued shares to accurately gauge your ownership and potential changes due to future share issuances and dilution.