There are three terms that fall together in a company: Shares Authorized, Shares Outstanding, and Share Float. The three terms are grouped together because of their connection to each other. When a company starts out, the company would authorize a certain number of shares that it may issue to investors. The number of shares authorized is a number issued by the Board of Directors. The Board of Directors may imagine is necessary over the course of initiating the business enterprise. Then, the Board of Directors, specifically, the Treasurer, would be authorized to issue shares of a company and raise the funds necessary to initiate the business.
If, for instance, the Board of Directors authorizes 1,000,000,000 shares to be issued, then this is the set number of shares authorized. This, however, can be changed, should the Board of Directors deem it necessary to increase or decrease the shares authorized. Then, from this, the Treasurer would set out to bring funds into the company by issuing, or selling, shares to investors.
If the Treasurer issues 100,000,000 shares at a value of $1.00 per share, then the shares outstanding is the 100,000,000 shares. In this instance, the total shares outstanding and in existence are solely the 100,000,000 shares outstanding. The company could issue more shares outstanding and sell more of a portion of a company. The initial 100,000,000 shares issued would represent 100% of ownership of the company. But, should the company issue more shares, they would dilute the ownership of a company. This does happen from time-to-time with new companies.
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When a company is a publicly-traded company, the share float is the number of shares that are freely allowed to be bought and sold by individual investors. Shares that are issued by the company to either private investors or personnel with the company may have what is termed a lock-up period. While these shares are “issued’ by the company, the individuals that hold ownership to these shares may not be able to exercise ownership of these specified shares until certain conditions are met such as high level marks for performance or a pre-determined period of time.
If a company had issued 100,000,000 shares and is a publicly traded company, the shares outstanding are the 100,000,00 shares. But, there may be a number of shares that are not permitted to float freely, such as 10% that are held in custody of the company. This would mean that the “float” is 90,000,000 despite there having been 100,000,000 shares outstanding.
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