What is Authorized Actions? Definition of Authorized Actions, Authorized Actions Meaning
The shares authorized are the maximum number of shares a company can issue.
The shareholding of a company can change a lot throughout its life based on its financing needs (due to buybacks, splits or counter-splits and capital increases). Therefore, when the company is established, it is authorized to issue a certain number of shares. These represent the value of it at that time. Therefore, the authorized shares of a company are understood as the maximum limit of shares that could be issued without modifying the articles of incorporation.
Authorized shares and issued shares
It is important to understand the distinction between the two concepts, since generally the number of issued shares will always be less than the total number of authorized shares.
Let's imagine that a company has been authorized to issue 1,000,000,000 shares. Once the company has this authorization, it can decide how many shares to issue. Imagine, for example, that the company needs 100,000,000 shares to finance itself. In this case, the company would only issue 10% of the authorized shares, thus having room for new issues. Therefore, the company would have 1,000,000,000 authorized shares and 100,000,000 issued shares.
Shares issued and shares outstanding
Another important distinction is that of issued shares and outstanding shares.
Let's imagine that the previous company after issuing 100,000,000 shares decides to buy back 10,000,000 shares because it considers that they are trading at an attractive price. These shares would become part of the company's self-portfolio and would cease to circulate (since they could not be acquired by the public). Therefore, the outstanding shares would be the issued shares, minus those that the company has decided to buy back (100,000,000-10,000,000 = 90,000,000).