Corporate share structures can be a labyrinth of complexity, especially when it comes to distinguishing between authorized and issued shares. This article delves into these crucial concepts through the lens of a professional nursing corporation, highlighting how understanding share allocation is vital for business growth and investment strategies. We explore the case of Deandra, a nurse grappling with the intricacies of her company’s 25,000 authorized shares, of which she holds 5,000. By examining the differences between authorized and issued shares, we uncover their significance in corporate governance, particularly within the regulated environment of professional corporations. The article aims to demystify the world of corporate shares, offering insights for business owners navigating the delicate balance between current ownership and future expansion potential. Through this exploration, readers will gain a clearer understanding of how share structures influence a company’s ability to grow, attract investors, and maintain compliance with industry-specific regulations.

Understanding Issues and Authorized Shares Can Help Grow Your Business! Here’s How… 

The concept of corporate shares can be confusing, especially when distinguishing authorized shares vs. issued shares. As demonstrated by a recent query from our client, a nurse operating a professional nursing corporation, these constructs play a critical role in structuring ownership and allowing for potential investment opportunities.  

In our client Deandra’s case, she was allocated 5,000 shares out of 25,000 available shares. Her confusion stemmed from the difference between the total available shares (authorized) and the number of shares she received (issued).  

The difference between authorized and issued shares is important for understanding ownership in a corporation, but also is key in bringing in future investors—a particularly complex issue in professional corporations like hers. So, what are the differences between authorized shares vs. issued shares? And how can these factors influence corporate growth and investment? Let’s clarify and answer those questions in this article.  

Key Takeaways 

• Authorized shares are the maximum number a company can issue, as specified in its corporate charter. 

• Issued shares are the portion of authorized shares that have been distributed to shareholders.  

• Not all authorized shares need to be issued at once, allowing flexibility for future stock issuance.  

• To issue more shares than authorized, a company must seek approval from its board and shareholders.  

• Real-world examples from companies like Apple and Microsoft show how corporations manage authorized and issued shares to balance growth and shareholder value. 

Defining Authorized and Issued Shares 

Even though they may seem straightforward, the topic of authorized shares vs. issued shares can be challenging. There are various factors that need to be considered to arrive at an accurate number, just like we did for our client Deandra. Let’s break it down: 

What Are Authorized Shares? The Maximum Allowed by the Charter 

Authorized shares are the maximum number of shares a company can issue as set forth in its corporate charter. Think of them as the upper limit on ownership that a company can distribute. For example, Dendra’s company has 25,000 authorized shares, meaning the total pool of shares it could potentially allocate to shareholders cannot exceed that number without formal approval.  

This limit provides flexibility for future expansion. In our client’s case, even though she was allocated 5,000 shares (issued), the company has the capacity to issue more shares later—whether to raise additional capital or bring in new shareholders, such as employees or investors.  

If she wishes to propose investment opportunities, the company has room within its 25,000 authorized shares to distribute additional shares without needing to amend its corporate charter. However, any decisions to issue new shares must be approved by the company’s board and existing shareholders, to ensure transparency and protect current equity holders.    

How to calculate authorized shares? 

The number of issued shares is usually less than the authorized shares, which include shares that are issued to the public. Therefore: 

Issued shares + yet to be issues shares = authorized shares 

The number of shares can be legally changed by way of majority vote and/or if consented by the shareholder.  

Issued Shares: Distributed Ownership 

Issued shares, on the other hand, refer to the portion of authorized shares that the company has already allocated to shareholders. For our client, the 5,000 shares mentioned in her paperwork are her portion of the issued shares, representing her ownership stake in the company. This leaves 20,000 authorized shares unissued, which provides opportunities for future stock issuance if the company grows or needs to raise funds.  

IMPORTANT NOTE: While companies are authorized to issue a certain number of shares, they often do not distribute all of them at once. This difference between authorized vs issued shares plays a key role in controlling ownership distribution and market perception. Issuing too many shares too quickly can dilute the existing shareholders’ stakes. On the other hand, issuing too few can limit the company’s ability to attract new investors.  

How Does Bringing in New Investors Works for a Professional Corporation? 

Deandra’s question was related to her wanting to bring in outside investors to her professional nursing corporation. While the mechanics of issuing shares are clear, professional corporations like hers are subject to specific regulations that limit who can own shares.  

For example, under California law, only certain licensed professionals can hold shares in a professional nursing corporation. This means that while our client could allocate more of the unissued 20,000 shares, the pool of potential shareholders is restricted. Specifically, only licensed nurses and allied professionals (such as medical doctors, podiatrists, and licensed clinical social workers) can legally own shares in her corporation. 

These regulations become particularly important when your investor ISN’’T a licensed professional and you need to start looking into other options for partnership (like an MSO).  

Also, according to the California Business and Professions Code, nurses must own the majority, holding at least 51% of the corporation’s shares. In our client’s case, if Deandrawere to bring in new investors, she must ensure that nurses collectively hold the majority of issued shares. This means that the number of nurse shareholders must either equal or exceed the number of allied professional shareholders. 

Regulatory Requirements for Professional Nursing Corporations 

As Dendra operates a professional nursing corporation, there are specific restrictions on who can be shareholders, as outlined in the California Business and Professions Code. Only licensed professionals within certain fields are allowed to hold shares (remember our reference to allied professionals). The following licensed professionals are permitted to be shareholders in a professional nursing corporation: 

• Licensed nurses  
• Licensed physicians and surgeons  
• Licensed doctors of podiatric medicine  
• Licensed psychologists  
• Licensed optometrists  
• Licensed marriage and family therapists  
• Licensed clinical social workers  
• Licensed physician assistants  
• Licensed chiropractors  
• Licensed acupuncturists  
• Naturopathic doctors  
• Licensed professional clinical counselors  
• Licensed midwives  

These limitations restrict Deandra from accepting investments from individuals outside these licensed professions. 

Not only is her pool of potential investors limited, but even if she brings in allied professionals, she must maintain the number of nurse shareholders, so they equal or exceed the shareholders of those allied professionals.  

Authorized Shares vs. Issued Shares: The Differences and Implications for Corporate Growth 

Understanding the difference between authorized and issued shares is essential for corporate growth strategies and shareholder rights. Below is a breakdown of key differences and their implications:

Thus, the flexibility provided by the unissued shares allows our client’s nursing corporation room to grow while adhering to legal restrictions on share ownership.  

Real-World Examples of Authorized vs. Issued Shares Dynamics  

Looking at large corporations outside of the medical professional corporation world helps illustrate how authorized shares vs. issued shares plays out in practice. Although these companies may not be professional nursing corporations, the applications still give us great examples of how the dynamics work. 

Apple Inc., for example, had 12 billion authorized shares but only issued about 4.6 billion by September 2019. This gap allows Apple to maintain flexibility for future growth without immediately diluting its stock.  

Similarly, Microsoft had 7.64 billion authorized shares, with approximately 7.5 billion issued by July 2020. This means that the company has already utilized most of its authorized shares but left a small buffer for future issuance.  

These examples show how corporations strategically manage the relationship between shares issued vs authorized to balance growth, investor appeal, and shareholder value. Danielle’s corporation, while smaller, operates under similar principles.  

Authorized vs Issued Shares: Structuring Ownership and Pursuing Growth 

In summary, the distinction between authorized shares vs. issued shares plays a pivotal role in how companies structure ownership and pursue growth. Understanding this distinction empowers business owners, such as our client to navigate corporate governance and plan for future investment opportunities.  

The state regulations of professional corporations, like our client’s nursing corporation, add an additional layer of complexity, dictating who can be shareholders and how many shares can be issued. It is important to understand these nuances to make informed decisions about share distribution and investment strategies.  

By carefully managing authorized and issued shares, our client can ensure that her corporation grows while remaining compliant with state laws and protecting her majority ownership stake.  

Work Your Way Around Issued and Authorized Shares with Ease  

The issue of authorized shares vs. issued shares must be completely understood not only by shareholders but also those who are looking to establish a corporation in California. And it becomes even more tricky when your corporation has specific shareholder regulations. Know the differences, and learn how to calculate authorized shares and issued shares, etc.  

As you would recommend your clients to work with you as a professional in your field, we always recommend working with a professional lawyer that specializes in corporate guidelines. Shareholders, investors, and regulations are best dealt with if you have a seasoned corporate attorney guiding you in all aspects. Incorporation Attorney, a corporate law firm in California, can help you understand the ins and outs. Moreover, we can provide sound legal advice on how you can go about managing your professional corporation with ease.  

Contact us today for more information on how we can be of service!