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Treasury Stock vs Authorized Shares: What's the Difference?

When it comes to a company's stock, there are two key terms that are important to understand: treasury stock and authorized shares. Both of these terms refer to a company's stock, but they have different implications. Here's a look at the difference between treasury stock and authorized shares.

What are Treasury Shares?

Treasury shares are a company's own shares that have been repurchased by the company. They are not outstanding, meaning they are not owned by shareholders. Instead, they are held by the company.

There are a few reasons why a company might repurchase its own shares. One reason is to reduce the number of shares outstanding, which can increase the value of the remaining shares. Another reason is to have shares available for employee stock option programs.

Treasury shares can be reissued at a later date, but they do not have voting rights and do not entitle the holder to any dividends.

What are Authorized Shares?

Authorized shares are the maximum number of shares that a company is allowed to issue, as specified in its articles of incorporation. A company will usually have a large number of authorized shares, but not all of them will be issued.

The number of authorized shares can be increased by shareholders if the company wants to issue more shares. For example, a company might do this to raise capital or to create a new class of shares.

The Difference Between Treasury Shares and Authorized Shares

The key difference between treasury shares and authorized shares is that treasury shares are owned by the company, while authorized shares are owned by shareholders. Treasury shares do not have voting rights and do not entitle the holder to any dividends, while authorized shares do have these rights.

Another difference is that treasury shares can be reissued at a later date, while authorized shares cannot be increased.

Why Does it Matter?

It's important to understand the difference between treasury shares and authorized shares because it can have an impact on a company's stock price. If a company has a lot of treasury shares, it can be seen as a negative because it means the company has bought back a lot of its own stock. This can be viewed as a sign that the company's management doesn't believe in the future of the company.

On the other hand, if a company has a lot of authorized shares but hasn't issued all of them, it can be seen as a positive because it means the company has the potential to issue more shares and raise capital.

Final Thoughts

Treasury shares and authorized shares are both important concepts to understand when it comes to a company's stock. Treasury shares are owned by the company, while authorized shares are owned by shareholders. Treasury shares do not have voting rights and do not entitle the holder to any dividends, while authorized shares do have these rights.

Authorized shares can be increased by shareholders if the company wants to issue more shares, while treasury shares can be reissued at a later date.

It's important to understand the difference between these two types of shares because it can have an impact on a company's stock price. If a company has a lot of treasury shares, it can be seen as a negative, while if a company has a lot of authorized shares but hasn't issued all of them, it can be seen as a positive.

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