Definition of Shares Issued
Issued shares are the part of the share authorized by the company which are sold either tothe shareholders of company, member of company or any person from general public and these shares are shown in the annual report of the company or in other words it include the shares sold to general public to raise capital and shares provided to the members of the company as compensation.
There are three terms used in this context: Authorized shares, Outstanding Shares and issued shares. Authorized shares mean the maximum number of stock stated in Article of Incorporation which a company is allowed to issue to its shareholders. Outstanding Shares are the part of authorized shares which have been issued by the company and issued shares are those shares which are sold by the company to its shareholders. This figure is shown in the balance sheet of the company as owner’s equity and is also used in the calculation of earnings per share which helps investors to analyses the performance of the company.
Example of Shares Issued
Suppose, the company authorized shares which are stated in the article of incorporation are 500,000 shares. If the company issue 250,000 shares having the nominal value of $2 per share to its investors or shareholders, then $500,000 (250,000 * $2) is the issued share capital of the company which is shown in the balance sheet of the company as owner’s equity
Types of Shares Issued
There are different types of share issue:
- Share Issue: These shares are issued to new or old shareholders either at par or at a premium.
- Bonus Issue: These shares are issued to existing shareholders at free of cost based on the number of shares already held by the shareholders. The accumulated reserve is not used for the payment of dividend are converted into bonus shares. For example: 1 bonus share is given against per 5 shares held by the shareholder
- Rights Issue: Rights to acquire shares are issued to the shareholders in proportion to their shareholding. These shares are provided to shareholders at discount. The shareholder has the right to acquire the share at discount or renounce it in favour of another person.
- Scrip Issue: This is a type of bonus issue as the company provides options to its shareholders to accept the dividend in form of shares and not in cash. These shares are provided at no cost to shareholders.
- Share Splits: In this type of issue, the amount of Share capital remains the same but the number of shares issued is increased by the company. For example: 2 shares of $5 per share are splits into 5share of $2 per share.
- Share Consolidation: In this type of issue, the amount of total Share capital remains the same but the numbers of shares issued are decreases by the company. For example: 5 shares of $2 per share are consolidated into 2share of $5 per share.
Shares Issued vs Outstanding
- Issued shares mean those shares which are sold to the shareholders or investors of the company. These shares are provided to the persons who invest in the company, member of the company as compensation or to the general public whereas outstanding Shares is the difference between issued shares and treasury stock. Treasury stock means those issued stock which is bought back or reacquired by the company from its shareholders and not cancelled yet by the company. It represents the shares already held by the shareholders or investors or restricted shares held by the officers of the company. Outstanding shares cannot exceed issued shares but in the absence of treasury stock, it becomes equal to issued shares. This amount is fluctuating in nature. It increases when a company raises additional capital and decreases when the company reacquired its shares from its shareholders.
For example: Suppose a company has issued 80,000 shares and it reacquired 5000 shares from its shareholders and these reacquired shares are not cancelled by the company, so the number of outstanding shares are 75,000 shares(80,000-5000)
The advantages of shares issued are:
- Shares are issued by the company to raise the capital or money for the company. The proceeds from the sale of shares are used by the company in the way it wants and there is no obligation on the company to repay this amount but if the debt is raised by the company, the company can use this amount with some restrictions and there is an obligation on the company to repay this amount to the lender in future.
- Issuance of share is more flexible as a number of shares to be issued, class of shares, the face value of the share and when it to be issued is decided by the company on its own. The company can raise additional share capital by issuing more shares.
- If the company raises capital by issuing shares and the company is short in cash, it can skip the payment of dividend but this is not possible in case of debt. In the case of debt, interest should be paid on time otherwise the company become bankrupt.
The disadvantages of shares issued are:
- It is more costly for the company to raise capital from the issuance of shares than raising of debt as interest paid is deducted from the earnings for calculation of taxes but payment of the dividend is not deducted from earnings for calculation of taxes.
- When a company issue shares to its shareholders, they get voting rights. By using these rights they can change the company’s policies and take part indecisions of management. This will result in dilution of control by the original owners. They can also take over the company by acquiring more shares from the stock market.
- When a company issues the shares to the general public, it has to disclose its financial position and operation details to the general public which is confidential to the company.
- If a company raises additional capital by issuing shares after the initial public offering, this will result in a reduction in the price of existing shares or dividend per share and existing shareholder may become angry and fight for their control.
Issued shares are those shares which are allotted to the shareholders of the company out of the authorized shares stated in the legal document that is an article of incorporation. It is more flexible for the company to raise money by issuing shares instead of raising debt as the company can skip dividend but did not skip the interest in case the company is running short in cash.
This is a guide to Shares Issued. Here we also discuss the definition and types of shares issued along with advantages and disadvantages. You may also have a look at the following articles to learn more –