What is Outstanding Stock?

//What is Outstanding Stock?
What is Outstanding Stock? 2017-10-06T06:50:03+00:00

Definition: Outstanding stock are the shares of a corporation that are issued and held by the shareholders. In other words, outstanding stock is the number of shares that the shareholders own.

What Does Outstanding Stock Mean?

When a company is incorporated, it drafts a corporate charter that dictates the number of shares the corporation has to issue. This could be any number. The corporate charter could authorize 10 shares or 10,000,000 shares. The people organizing the company can decide that.

After the company is incorporated, the company issues shares to investors to raise money and help fund the initial operations. Not all of the authorized shares have to be issued at once though.

Example

Take Compass, Inc. for example. Compass’ corporate charter authorized it to issue 30,000. Compass sold and issued 10,000 shares to the original investor who founded the company. Now Compass has 30,000 shares authorized and 10,000 shares outstanding.

A few years down the road, Compass needs more capital to add on to the factory, so it issues sells another 5,000 shares. Now there are 30,000 shares authorized and 15,000 shares outstanding.

After a couple years, one of the investors wants to retire his shares and leave the company. The board of directors reaches a deal and Compass purchases 7,000 shares from the shareholder. Now there are 30,000 shares authorized and 8,000 shares outstanding.

Most financial statements either say in the equity section or notes how many shares are authorized and how many are outstanding during the period. This gives investors and creditors an idea of how much equity financing is possible in the future. In other words, it shows how many more shares can be issued to raise funds for the company.