What Is Unissued Stock?
Unissued stock consists of company shares that have not been circulated or put up for sale to either employees or the general public. Consequently, companies do not print stock certificates for unissued shares, which are typically held in the company’s treasury. These shares generally have no direct impact on shareholders:
Key Takeaways
- Unissued stock refers to company shares that have not been made available for sale.
- The number of unissued shares can be derived by subtracting the outstanding shares plus treasury stock shares from the total number of authorized shares.
- These shares do not grant voting rights or generate dividends for shareholders.
- Unissued stock can hint at potential changes that might dilute a company’s earnings per share.
Understanding Unissued Stock
When a company goes public, it authorizes a certain number of shares in its charter or articles of incorporation. These are referred to as authorized stock, encompassing both shares available for sale to investors and employees, and those not yet on the market. The latter are known as unissued shares. Companies do not create certificates for unissued stock, which are held in the company’s treasury.
The calculation of unissued shares involves taking the total authorized shares and subtracting the outstanding shares plus the treasury stock. Treasury stock comprises shares that a company has repurchased. Unissued shares often are significant for stockholders to monitor for events that could affect the value and ownership stakes of existing stock. While unissued shares lack voting rights and don’t receive dividends, they can dilute ownership stakes and share value if the company decides to issue them in the future.
Analysts and investors pay close attention to a company’s intentions regarding previously unissued shares. New funding strategies that include the issuance of these shares might dilute the company’s earnings per share (EPS). Notably, calculations for diluted EPS typically account for convertible securities that could be converted into equity and stock options pending exercise, but not for unissued shares.
Unissued Stock vs. Treasury Shares
Unissued stock is different from treasury stock, which includes shares that have been issued, sold, and later repurchased by the company. However, the distinction can sometimes be blurred as some companies might classify treasury shares as unissued stock for additional flexibility in potential future stock sales.
Companies that classify treasury shares as unissued stock often do so to maintain flexibility for future issuance, provided their corporate charters allow it. For instance, a company may disclose in its financial statement notes authorization to issue 10 million shares but have only issued a portion of this amount. Let’s explore a real-world example.
In a 2016 8-K filed with the Securities and Exchange Commission (SEC) by Dollar Tree, the company stated: “Shares purchased under the share repurchase authorizations are generally held in treasury or are canceled and returned to the status of authorized but unissued shares.” This statement illuminates how companies manage their unissued and treasury shares to maintain strategic flexibility.
Related Terms: treasury stock, authorized stock, dilution, earnings per share, stock repurchase.
References
- Dollar Tree. “Form 8-K - May 5, 2016”, Page 10.
