Authorized and issued shares

Why are authorized shares and issued shares necessary?

When incorporating a business as a corporation, a corporation is often asked the questions of authorized and issued shares. The corporation has to determine and decide beforehand how many shares of stock the corporation will authorize and issue.

When to determine authorized and issued shares?

When a state authorizes the existence of a corporation, the state will issue a corporate charter which, among other things, will specify how many shares of stock are authorized and how many are issued to stockholders.

How many shares should a corporation have authorized and issued?

Many business owners incorporating their businesses take an easy route. However, the business owners may regret their decisions later if the question of authorized and issued shares are not carefully thought of.

For example, if Mary sets up a small corporation to sell her flower baskets as a business, Mary may decide that she only needs one share of stock to be authorized by the state and that one share is to be issued to her.

The problem with having one authorized and issued share is that if Mary wants a partner later on. Say, Mary's flower baskets business is going well and Mary now needs help. Mary wants her good friend Stacie to help her with her flower baskets business in exchange for some share of the business. Mary decided that she wants Stacie to own a third of her business. The problem Mary faces now is how to divide the one authorized and issued share the state has approved?

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