Discuss the difference between authorized shares and outstanding shares? Are there other classifications of shares that are important to consider?
Classification of Shares:
Shares represent units of ownership in a company. Individuals buying shares become shareholders of the company. Shareholders enjoy various rights such as suing wrongful acts and inspecting a company?s documents.
Answer and Explanation:
There is a significant difference between authorized and outstanding shares. The former refers to the number of shares that a company has the authority of issuing, as stipulated in the article of association, while the latter refers to the shares that have been issued. It is worth noting outstanding shares cannot be more than authorized shares as they are always less than or equal to the authorized shares.
Other classifications of shares to be considered include:
- Ordinary shares. They do not have special rights and restrictions. Ordinary shares holders are obliged to one vote per share.
- Redeemable shares. The types of shares allow the issuing company to buy them in the future meaning that shareholders can sell them to the company.
- Preference shares. Shareholders are entitled to a fixed amount of dividend annually. In the event a company is declared insolvent, preference shares are paid from the assets of a company.
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Learn more about this topic:
from Introduction to Business: Homework Help ResourceChapter 24 / Lesson 14