Before discussing about the authorized, issued and outstanding shares, I want to explain about equity shares.
What is Equity Shares?
Equity shares, also known as common stock or ordinary shares, is the financial security that represents the ownership in the company and especially issues to finance long term assets. By investing in company’s common stock investor get chance to be an owner of the company. It is one of the major long-term source of financing which is not repaid to the investors in the normal course of business operation. Investor who want to get back their investment can sell it in the secondary market.
Authorized Shares
It represents the number of shares of common stock that the company is allowed to issue. In other words, it is the maximum number of shares of common stock that the company can issue. The company can’t issue the common stock above the authorized shares. It generally issues the shares of common stock below the authorized shares.
Issued Shares
Issued shares represents the numbers of common stocks or the equity shares that the firm is offering to the general public. In other words, it represents the number of equity shares that the company is going to offer for sale. It may be less than or equal to the authorized shares.
Outstanding Shares
Outstanding shares refers to the number of equity shares purchased and held by the investors. In other word, outstanding shares are the part of issued shares that are successfully sold to the investors. These are termed as outstanding shares because these have to be returned back to the investors in case company shut down.