The term Authorized Shares means the number of shares that a company is "authorized" to issue. For instance, if a company is only authorized to issue 100,000 shares of its common stock, then once it has issued the full 100,000 shares it cannot issue any more shares unless it gets shareholder approval to do so. The terms is also applied to the preferred stock of a company.
The definition of Authorized Shares should not be confused with the term issued and outstanding which means the number of shares that the company has issued to shareholders or investors on any particular date. The number of issued and outstanding shares cannot be more than the number of authorized shares. If the company is public then its transfer agent will make sure that the company will not issue more than the number of shares that the company is legally permitted to issue.
If the company is private, then the officers and directors usually issue the common stock and they would be responsible and have liability if they issued more than the authorized amount. If you saw the movie/play The Producers, when they issued shares to investors that were equal to much more than 100% of the number of shares authorized, then you get the picture. The more common stock a company issues the more dilution all shareholders suffer, which typically causes the stock price to drop, depending a number of factors.
Joseph B. LaRocco advised companies on the options available to them for listing on stock exchanges like Frankfurt, Berlin and Stuttgart to better enable them to access the capital markets. He has also assisted companies looking to enter into licensing and distribution agreements with their products on an international basis. Joseph B. LaRocco has represented various clients on a transactional basis as their legal adviser providing deal structuring and due diligence, as well as contract review, drafting and closing services.
If you are a shareholder or
investor considering making an investment in a company, it is important to know the number of shares of common stock a company is authorized to issue. If a company has almost as much common stock issued and outstanding with its shareholders as it is authorized to issue, then it may be necessary to have a shareholder meeting or a board meeting. depending on the state law, to increase its number of authorized shares.
Joseph B. LaRocco has represented private and public companies and advised them on various options available to them for raising capital through the use of their authorized shares.
Usually a shareholder meeting is required to increase the number of shares that a company is authorized to issue. Once the number is increased, the board of directors would then be able to set terms and conditions on how they would raise capital. For instance they could issue a convertible debenture or just sell the common stock at a fixed price.
The sale of convertible debentures, the sale of common stock and many other forms of corporate funding would be considered private placement funding requiring the company to prepare and distribute to interested investors a private placement memorandum .The offering would most likely be made pursuant to Regulation D of the Securities Act of 1933. State and federal securities laws apply and legal counsel should be consulted before a company undertakes any kind of fund raising through the sale of its common stock or any kind of security convertible into common stock.
Most microcap companies occasionally need to increase this number from time to time. They need to do this because they need to keep raising capital to execute their business plan, especially if they have a high burn rate. Selling equity is the most common way for microcap companies to raise capital until they have sufficient assets or cash flow to obtain bank financing or debt financing from a private lender.