Definition
Unissued Stock refers to shares that have been authorized in a company’s corporate charter but have not been issued to the public or sold to investors. These shares remain the property of the issuing corporation until they are sold. They do not represent any rights or liabilities until they are issued to shareholders.
Phonetic
The phonetic pronunciation of “Unissued Stock” is: ʌnˈɪʃuːd stɒk
Key Takeaways
- Unissued Stock: These are shares that are authorized in the corporation’s charter but have not yet been issued or sold to investors. They control the potential for dilution of shares when they are issued in the future.
- Company’s Reserve: Unissued stocks are held in reserve by the company. They can be used for various corporate purposes like raising fresh capital, employee incentive programs, stock splits, or for preventing hostile takeovers.
- Impacts on Market: While unissued shares don’t directly affect a company’s market capitalization since they are not yet traded, they stand to have significant impact if and when they do get issued. Depending on how these shares are used, they could either drive the company’s market cap and share price up, or trigger dilution which could push share price down.
Importance
Unissued Stock is an important term in business and finance as it refers to the shares that a company has authorized to sell but has not yet been sold or distributed. These stocks are essentially a reserve for the company which it can use to generate funds when needed, either by selling them to the public or using them for employee stock option plans. The management holds the control of these shares and hence, can have a significant impact on the company’s ownership structure. If these unissued shares are sold, it can dilute the value of existing shares, thus impacting shareholders. Therefore, the dynamic of unissued stock is crucial for understanding both the company’s current financial position and its potential for raising future capital.
Explanation
Unissued stock refers to the shares that a company has authorized to sell but has yet to do so. These shares serve several purposes and can be used strategically depending on the objectives and expansion plans of the corporation. For instance, they can be reserved and later sold to generate additional capital when the company requires new financing for growth, to fund acquisitions, or establish employee incentive programs without having to issue additional shares.Retaining a portion of unissued stock also provides the company a degree of flexibility in managing its capital structure. It provides a convenient way for companies to raise capital without the need to incur debt, thus avoiding interest payments and potential financial distress. Additionally, unissued shares can also be used to fend off unwanted acquisition attempts. By issuing additional shares to a friendly party, a company can effectively dilute the ownership stake of an unwanted acquirer, often making the take-over attempt more costly or unappealing. The precise purpose of unissued stock, thus, can vary from company to company, depending on its specific needs and strategy.
Examples
1. Google: In 2012, Google announced plans to create a new class of non-voting capital stock (Class C). This new class would be distributed via a stock dividend to all existing stockholders. The unissued stock provided a way for the company to issue stock to employees under stock option plans, make acquisitions or for other reasons without diluting the voting control of the existing shareholders.2. Berkshire Hathaway: This company has millions of unissued shares of both Class A and Class B common stock. Berkshire keeps a large number of shares unissued so they can be used for acquisitions, compensation plans or other corporate purposes when needed. 3. Facebook: In its IPO registration statement with the SEC in 2012, Facebook reported having nearly 1.8 billion shares of unissued common stock. The company stated that these shares would be available for future use, such as stock splits, financing acquisition transactions, or fulfilling the firm’s obligations under its equity incentive plans.
Frequently Asked Questions(FAQ)
What is Unissued Stock?
Unissued Stock refers to the shares that a company is authorized to sell but has not yet released to the public. These shares can be sold at a later date when the company needs to raise capital.
Who holds the authority to issue Unissued Stock?
The Board of Directors of a company holds the authority to decide when to release the unissued stock into the market.
Is Unissued Stock considered as a company’s asset?
No, unissued stock is not considered an asset. They are potential capital for the company but are not recorded on the balance sheet until they are issued.
Can Unissued Stock be sold on the stock market?
Unissued stock cannot be directly sold on the stock market. They need to be issued by the company, becoming issued stocks, to be valid for trading.
How is Unissued Stock different from Treasury Stock?
Treasury stocks are shares that have been issued by the company and later repurchased. On the other hand, unissued stocks are shares that are authorized for sale but have never been sold or issued to the public.
Can a company increase the number of Unissued Stocks?
Yes, a company can increase the number of unissued stocks. However, this usually requires approval from the existing shareholders, as it can often dilute the value of their shares.
How does the issuance of Unissued Stock affect the company’s financial health?
If a company decides to issue unissued stock, it can strengthen its financial position by raising additional capital. However, over-issuance may dilute the value of existing shares, potentially harming the company’s market reputation.
Can dividends be declared on Unissued Stock?
No, dividends cannot be declared on unissued stock as they are not considered outstanding stock. Dividends can only be declared on shares that have been issued and are held by shareholders.
Does Unissued Stock have voting rights?
No, unissued stocks do not have voting rights. Only issued stocks grant voting rights to their holders.
Related Finance Terms
- Authorized Capital
- Retained Earnings
- Treasury Stock
- Outstanding Shares
- Equity Financing
Sources for More Information
