Question 1

Why do companies authorize more shares than they issue?

Accepted Answer

Companies authorize extra shares to give themselves flexibility for future fundraising, employee stock options, acquisitions, or convertible debt conversions. A large gap between authorized and outstanding is a warning sign for potential dilution.

Question 2

Can a company increase its authorized shares?

Accepted Answer

Yes, but it requires a shareholder vote. In OTC stocks, this sometimes happens without much notice. Watch for DEF 14A proxy statements proposing share authorization increases — they are often a precursor to dilution.

Question 3

What is a dangerous authorized-to-outstanding ratio?

Accepted Answer

There's no universal rule, but if a company has 10 billion authorized shares and only 100 million outstanding, that's a 100:1 ratio — a massive dilution runway. OTC traders generally prefer ratios under 3:1.

Authorized vs Outstanding Shares: What's the Difference?

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