Why increase authorized shares

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This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. A treasury offering is the issuance of an additional class of security already existing in a firm's treasury. What Is a Stock Dividend? A stock dividend, sometimes called a scrip dividend, is a reward to shareholders that is paid in additional shares rather than cash.

Accumulating Shares Accumulating shares is a classification of common stock that is given to shareholders of a company in lieu of or in addition to a dividend. Subsequent Offering A subsequent offering is the issuance of additional shares of stock after the issuing company has already had an initial public offering. If a startup does not have a cushion of authorized shares beyond the number of already issued shares, it would first need to deal with the administrative burden of obtaining required board and stockholder approvals to increase the number of authorized shares of common stock, and then would need to file a charter amendment in its state of incorporation.

See our article about how shares are issued to founders. Outstanding shares are shares of stock that a corporation has issued and which have been "fully paid for. Reserved shares are authorized shares that are set aside for issuance in the future. Shares are often reserved for issuance under a stock option plan. These reserved shares are part of the total number of authorized shares, but the corporation may not issue them, except underthe stock option plan.

See our article about determining how many shares to reserve in a stock option plan. Authorized shares are also reserved when the corporation issues a warrant to a third party to purchase stock. He contacts his Registered Agent and requests to amend the number of authorized shares from 5, shares, which will allow for more investors. Bob creates a separate class of 1,, shares. Now he can use these additional shares, even though they are of a different class with different voting rights, to raise additional funds.

He also decides to change his company name, as it now not only creates seasonings but also sauces, dressings and juices. Now his company has a new name and a new amount of authorized shares, but it is the same company. This scenario is very common in business. Take Facebook, Inc. When Facebook, Inc. Since , Facebook has made approximately 18 amendments to its Articles of Incorporation. Some of those amendments include changing the number of authorized shares and changing the name from The Facebook to Facebook.

Facebook now has 5,,, common class A shares; 4,,, common class B shares; and ,, preferred shares. Quite an increase for a company that started with , authorized shares. These are just two examples of how companies grow and need to make changes to their Articles of Incorporation.

Goals are achieved, the market changes, customer interest changes and investor demand changes are all reasons why companies have to adapt. This article provides general commentary on, and analysis of, the subject addressed.

We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc.

Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc. I started with one million authorized shares but my business is pretty slow to start. I am wondering if I can reduce the number of shares to five thousand and pay less in franchise tax. Thanks, Rakesh.