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Common Stock

All stock represents ownership in a company, but when people talk about "stock" they are usually talking about common stock. Preferred stock also represents ownership in a company, but its behavior and the rights it confers are somewhat different. Common stock may be classified in four ways, authorized, issued, outstanding and treasury stock.

Authorized Stock

Authorized stock refers to the total number of shares that a company is permitted to sell. This number is determined in the company's original charter. Companies often offer only a portion of their total authorized shares to investors, enough to cover financial needs for the foreseeable future. The rest are reserved for future stock offerings, paying stock dividends, or other reasons. If a company distributes all of its authorized shares to investors and still finds the need to issue more, then the original company charter may be amended. This amendment requires a full shareholder vote to come into effect.

Issued Stock

Issued stock refers to the shares that have actually been distributed to investors. Shares of stock that are authorized but unissued do not confer voting and dividend rights.

Outstanding Stock

Outstanding stock refers to shares that have been issued to and are currently being held by investors.

Treasury Stock

Treasury stock refers to shares that have been issued to and then repurchased from investors by the company. They are held in the company's treasury. Though the company now owns shares of itself, treasury shares do not confer voting or distribution rights to the company. However, they are useful for distributing as employee bonus plans or stock options. Under certain circumstances, treasury stock may even be reissued to investors. Perhaps the most important effect of repurchasing shares into the company treasury is that the number of outstanding shares is decreased. With fewer shares outstanding, scarcity makes the investor's earnings per share increase; and greater earnings per share mean each share is worth more money in the marketplace.

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Common Stock