Authorized stock, or Authorized Shares, refers to the maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation in the U.S., or in the company's charter in other parts of the world. It is also usually listed in the capital accounts section of the balance sheet. Authorized shares should not be confused with outstanding shares, which are the number of shares issued and held by shareholders.The purpose of specifying a limit on authorized stock is twofold:-(1) It allows for flexibility as a company grows and needs to raise more money by issuing new stock.(2) It protects existing shareholders from being diluted by an influx of new shareholders who would own a smaller percentage of the company if there were no limit on authorized stock.For example, if XYZ Corporation has 1 million authorized shares but only 500,000 outstanding ones, then anyone who buys 100 new shares would own 10% of XYZ Corporation even though they only invested 1% of the total equity raised by the company. This could dilute the value of existing shares.While it might be tempting for companies to increase their authorized share count without any repercussions, this can actually lead to problems down the market when they want to raise money again. Investors may be concerned about future dilution and not want to buy into a company that may issue more stock in them future at a lower price per share.
