Authorized Shares
The maximum number of shares a company is legally allowed to issue, set in its charter.
Definition
Authorized shares is the maximum number of shares a company can issue, as specified in its certificate of incorporation. This number must be large enough to cover all outstanding shares, the option pool, and future issuances. Increasing authorized shares requires a board and shareholder vote. Companies often authorize far more shares than they initially issue to allow for future grants and fundraising.
Why it matters
If the company needs to authorize more shares (for a new option pool or fundraise), it needs board approval. This is routine but worth understanding because it is the legal framework that enables future dilution.
Example
A company's charter authorizes 20M shares. It has issued 8M common, 3M preferred, and has a 2M option pool. There are 7M authorized but unissued shares available for future use.