Why can unissued capital stock exist?
Unissued capital stock allows a company to issue shares at any given time, diluting the ownership of current shareholders. This does not seem logical nor fair. At any given time, shouldn't 100% of the company be owned by the shareholders? Because by nature of unissued capital stock, not 100% of a company is owned at a given time (unless all unissued capital stock are issued).
stocks financial-literacy stock-valuation
edited 21 mins ago
Dheer
49.5k961146
asked 2 hours ago
Novel Ventures
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add a comment |
Unissued capital stock allows a company to issue shares at any given time, diluting the ownership of current shareholders. This does not seem logical nor fair. At any given time, shouldn't 100% of the company be owned by the shareholders? Because by nature of unissued capital stock, not 100% of a company is owned at a given time (unless all unissued capital stock are issued).
stocks financial-literacy stock-valuation
edited 21 mins ago
Dheer
49.5k961146
asked 2 hours ago
Novel Ventures
1312
add a comment |
Unissued capital stock allows a company to issue shares at any given time, diluting the ownership of current shareholders. This does not seem logical nor fair. At any given time, shouldn't 100% of the company be owned by the shareholders? Because by nature of unissued capital stock, not 100% of a company is owned at a given time (unless all unissued capital stock are issued).
stocks financial-literacy stock-valuation
edited 21 mins ago
Dheer
49.5k961146
asked 2 hours ago
Novel Ventures
1312
Unissued capital stock allows a company to issue shares at any given time, diluting the ownership of current shareholders. This does not seem logical nor fair. At any given time, shouldn't 100% of the company be owned by the shareholders? Because by nature of unissued capital stock, not 100% of a company is owned at a given time (unless all unissued capital stock are issued).
stocks financial-literacy stock-valuation
stocks financial-literacy stock-valuation
edited 21 mins ago
Dheer
49.5k961146
asked 2 hours ago
Novel Ventures
1312
edited 21 mins ago
Dheer
49.5k961146
asked 2 hours ago
Novel Ventures
1312
edited 21 mins ago
Dheer
49.5k961146
edited 21 mins ago
Dheer
49.5k961146
edited 21 mins ago
Dheer
49.5k961146
49.5k961146
asked 2 hours ago
Novel Ventures
1312
asked 2 hours ago
Novel Ventures
1312
asked 2 hours ago
Novel Ventures
1312
1312
add a comment |
add a comment |
1 Answer
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It's not really true to say that having unissued stock means that the company is not 100% owned. It'd be more accurate to say that the unissued shares are assets of the company (and therefore, indirectly, of the current shareholders). The company can issue the stock to others in exchange for something that increases the value of the company by a comparable amount (e.g. cash or work). This makes it a fair trade which should not decrease the value of existing shareholders' stock.
For example, suppose company X has 10 issued shares of stock and a total of 20 authorized shares, (leaving 10 unissued). The valuation of the company is $10, meaning each owned share is worth $1. Now someone comes and gives the company $1 for a new share of stock. Now the company has an extra dollar it didn't have before so it's now worth $11. There are also now 11 issued shares of stock, so each one is still worth a dollar. The original shareholders have been "diluted" in that they now own a smaller percentage of the company, but due to the increase in the company's value, they're just as well-off as they were before. Company X can do this 9 more times before it's out of authorized shares and needs to ask the shareholders for permission to increase the number.
answered 1 hour ago
Daniel
803516
add a comment |
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1 Answer
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1 Answer
1
active
oldest
votes
active
oldest
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active
oldest
votes
It's not really true to say that having unissued stock means that the company is not 100% owned. It'd be more accurate to say that the unissued shares are assets of the company (and therefore, indirectly, of the current shareholders). The company can issue the stock to others in exchange for something that increases the value of the company by a comparable amount (e.g. cash or work). This makes it a fair trade which should not decrease the value of existing shareholders' stock.
For example, suppose company X has 10 issued shares of stock and a total of 20 authorized shares, (leaving 10 unissued). The valuation of the company is $10, meaning each owned share is worth $1. Now someone comes and gives the company $1 for a new share of stock. Now the company has an extra dollar it didn't have before so it's now worth $11. There are also now 11 issued shares of stock, so each one is still worth a dollar. The original shareholders have been "diluted" in that they now own a smaller percentage of the company, but due to the increase in the company's value, they're just as well-off as they were before. Company X can do this 9 more times before it's out of authorized shares and needs to ask the shareholders for permission to increase the number.
answered 1 hour ago
Daniel
803516
add a comment |
It's not really true to say that having unissued stock means that the company is not 100% owned. It'd be more accurate to say that the unissued shares are assets of the company (and therefore, indirectly, of the current shareholders). The company can issue the stock to others in exchange for something that increases the value of the company by a comparable amount (e.g. cash or work). This makes it a fair trade which should not decrease the value of existing shareholders' stock.
For example, suppose company X has 10 issued shares of stock and a total of 20 authorized shares, (leaving 10 unissued). The valuation of the company is $10, meaning each owned share is worth $1. Now someone comes and gives the company $1 for a new share of stock. Now the company has an extra dollar it didn't have before so it's now worth $11. There are also now 11 issued shares of stock, so each one is still worth a dollar. The original shareholders have been "diluted" in that they now own a smaller percentage of the company, but due to the increase in the company's value, they're just as well-off as they were before. Company X can do this 9 more times before it's out of authorized shares and needs to ask the shareholders for permission to increase the number.
answered 1 hour ago
Daniel
803516
add a comment |
It's not really true to say that having unissued stock means that the company is not 100% owned. It'd be more accurate to say that the unissued shares are assets of the company (and therefore, indirectly, of the current shareholders). The company can issue the stock to others in exchange for something that increases the value of the company by a comparable amount (e.g. cash or work). This makes it a fair trade which should not decrease the value of existing shareholders' stock.
For example, suppose company X has 10 issued shares of stock and a total of 20 authorized shares, (leaving 10 unissued). The valuation of the company is $10, meaning each owned share is worth $1. Now someone comes and gives the company $1 for a new share of stock. Now the company has an extra dollar it didn't have before so it's now worth $11. There are also now 11 issued shares of stock, so each one is still worth a dollar. The original shareholders have been "diluted" in that they now own a smaller percentage of the company, but due to the increase in the company's value, they're just as well-off as they were before. Company X can do this 9 more times before it's out of authorized shares and needs to ask the shareholders for permission to increase the number.
answered 1 hour ago
Daniel
803516
It's not really true to say that having unissued stock means that the company is not 100% owned. It'd be more accurate to say that the unissued shares are assets of the company (and therefore, indirectly, of the current shareholders). The company can issue the stock to others in exchange for something that increases the value of the company by a comparable amount (e.g. cash or work). This makes it a fair trade which should not decrease the value of existing shareholders' stock.
For example, suppose company X has 10 issued shares of stock and a total of 20 authorized shares, (leaving 10 unissued). The valuation of the company is $10, meaning each owned share is worth $1. Now someone comes and gives the company $1 for a new share of stock. Now the company has an extra dollar it didn't have before so it's now worth $11. There are also now 11 issued shares of stock, so each one is still worth a dollar. The original shareholders have been "diluted" in that they now own a smaller percentage of the company, but due to the increase in the company's value, they're just as well-off as they were before. Company X can do this 9 more times before it's out of authorized shares and needs to ask the shareholders for permission to increase the number.
answered 1 hour ago
Daniel
803516
edited 1 hour ago
answered 1 hour ago
Daniel
803516
answered 1 hour ago
Daniel
803516
answered 1 hour ago
Daniel
803516
803516
add a comment |
add a comment |
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