Basic Features of Corporate Shares in U.S.
Shares, or Stocks, represent an ownership interest in a corporation. Generally, it was the original capital paid into a business by its founders. This article will discuss some basic features of corporate shares in U.S.
Authorized Shares
Authorized shares are defined as the maximum number of shares that a corporation is legally allowed to issue to investors, as per its own determinations. The number of the authorized shares is listed in a corporate’s legal formation documents, known as the Articles of Incorporation.
There is no limit as to the total number of shares that can be authorized. After the incorporation, the number of authorized shares can be changed by way of a vote from shareholders, typically during the annual shareholder meeting. The company must file an amendment with the incorporating state if it decides to change the number of authorized shares.
Authorized shares include all types of shares that can be issued, such as:
Common Shares: Corporations frequently authorize common share in their Articles of Incorporation or Bylaws. Each share of share purchased gives someone a proportional ownership interest in the company. Per the Articles of Incorporation, common share owners may have voting rights at the shareholders meetings. Common shareholders receive dividends when the company is financially able to pay them.
Preferred Shares: Shareholders of preferred share have different rights than shareholders of common share. Unlike common share, the holders of preferred shares are prioritized over the common shareholders in dividend payments. And the preferred shareholders have the preference to receive the assets of the company on liquidation ahead of other classes of shareholders. Typically, the preferred shareholders do not have the voting rights.
The main features of Preferred Shares are as follows:
- Liquidation Preference
- Preference to Dividends
- No voting rights
- Convertible to common shares
- Redeemable Shares: can be repurchased by the issuer at certain dates in the future.
Issued and Outstanding Shares
Issued share is what the company has issued, which is less than the authorized share. The corporation is not obliged to issue all authorized shares. The total of share sold to investors is the issued share of the corporation, outstanding share is the difference between issued share and repurchased share held for resale.
Par Value
Par value is the face value of share. Par value, though, is not the market value; it is a value placed on the share by the corporation but has little to do with the buying and selling value of that share on the open market. Par value is established in the Articles of Incorporation and is the floor price of the share; the corporation may not accept less than par value for the share.
Companies in most states can also issue no-par shares. Corporations issue no-par share to reduce their exposure to liability: if the par value is greater than the market value, the corporation may be liable for that difference.
Reference:
https://finance.zacks.com/outstanding-share-vs-authorized-share-2309.html
https://www.investopedia.com/ask/answers/011315/what-difference-between-authorized-shares-and-outstanding-shares.asp
https://smallbusiness.chron.com/common-vs-authorized-share-issues-64403.html
https://saylordotorg.github.io/text_foundations-of-business-law-and-the-legal-environment/s25-03-types-of-share.html
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