Authorized shares

Authorized shares are the maximum number of shares of a given class of stock that a company's corporate charter, or articles of incorporation, permits it to issue. This number is set when the company is formed and can only be raised later by amending the charter, which typically requires approval from the board and a shareholder vote.

Authorized shares are almost always a larger number than the shares issued and outstanding, giving the company room to issue more stock later for things like employee compensation plans, stock splits, convertible debt conversions, or a future capital raise, without needing to go back to shareholders for approval each time. The gap between authorized and outstanding shares is effectively a company's built-in capacity for future dilution.

A company that is close to its authorized share limit will need shareholder approval to raise it before it can issue meaningfully more stock, which can act as a natural check on management's ability to dilute shareholders. A very large gap between authorized and outstanding shares is not inherently a red flag, since it is normal and often prudent to keep some room for flexibility, but it is part of a company's overall capital structure and dilution risk that is useful to understand.