Authorized Stock

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Definition of 'Authorized Stock'

Authorized stock is the maximum number of shares of a company's stock that can be issued. It is set by the company's articles of incorporation and cannot be changed without shareholder approval. Authorized stock is important because it determines the company's capital structure and how much it can raise through stock issuance.

There are two types of authorized stock: common stock and preferred stock. Common stock is the most basic type of stock and gives shareholders voting rights and the right to receive dividends. Preferred stock has a higher priority claim on the company's assets and earnings than common stock, but does not typically carry voting rights.

The number of authorized shares of common stock is typically much larger than the number of issued shares. This is because companies often want to have the option to issue more shares in the future if they need to raise capital. However, the number of authorized shares of preferred stock is typically much smaller than the number of issued shares. This is because preferred stock is less common than common stock and companies do not typically need to issue large amounts of it.

Authorized stock is an important concept for understanding a company's capital structure and how it can raise capital. It is also important for understanding the rights of shareholders and the different types of stock that are available.

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