Shares Issued

Shares Issued are the shares allotted by the company to the shareholders including public, insiders or institutional investors and held by them and are shown under the owner’s equity in the liability side of the balance sheet of the company.

Shares Issued Definition

Issued Shares are that portion of the total authorized shares of the company that are held by any type of shareholdersType Of ShareholdersThe common shareholders and preferred stakeholders are the two types of shareholders.read more, including management, public, or any other type of investor. For example, McDonald’s Authorized Shares in 2018 were 3.5 billion, out of which its total shares issued are 1.66 million shares and 0.89 are the treasury sharesTreasury SharesTreasury Stock is a stock repurchased by the issuance Company from its current shareholders that remains non-retired. Moreover, it is not considered while calculating the Company’s Earnings Per Share or dividends. read more.

Total Unissued Shares = Total Authorized Shares – Shares Issued – Treasury Shares = 3.5 – 1.66 – 0.89 = 0.95 million

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By issuing, shares firms can raise capital at low cost and invite investors to be a part of their growth story. These are mainly long term strategic initiatives and require in-depth analysis.

Types of Shares Issued by a Company

Types of Shares Issued

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#1 – Ordinary Shares

These are the most common type of shares that are issued by a public listed firm and hence the name common stock. They provide the simplest way for a firm to raise capital as they do not give any special rights. The only right with common stockholders is the right to vote. They don’t have any share on profit, and dividend payment is subject to the decision of the board or management.

#2 – Preference Shares

Preference shares are shares where the shareholder has a right to receive the dividend before it can be paid out to common stockholders. Often, they have a fixed dividend payout at fixed intervals of time, even though the firm might not declare a dividend for the ordinary shareholder. Additionally, they can be paid out an additional dividend based on some predetermined conditions. Also, in case of bankruptcy, they are preferred over common stockholders in terms of repayment. However, preferred shareholders do not get any voting rights. These are mainly popular among investors who want to invest in equity but also want a steady fixed incomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.read more.

Preference Shares can be further categorized into: –

  1. Cumulative preferred shares: These shareholders are entitled to dividends, including those that were not paid out in the past before any dividend can be paid out to ordinary or common stockholders. Simply stating, their dividends keep cumulating and can be claimed in the future.
  2.  Non-cumulative preferred shares: Holders of non-cumulative preferred sharesNon-cumulative Preferred SharesNon-cumulative preference shares are the stocks which allow the investors to receive a fixed dividend at the pre-determined dividend rate every year. However, if any year's dividend remains unpaid, the preference shareholders are not liable to receive it in the future.read more do not enjoy any such privilege. If the firm does not declare any dividend, they have no power to claim it in the future.
  3. Convertible preferred stock: Investors of this stock type have the right that allows them to convert their preferred shares into common stock based on some predetermined conditions and after a pre-decided date.

#3 – Redeemable Shares

These are the shares, as the name suggests, that can be redeemed by the firm based on certain pre-defined conditions like after a particular duration. They are more like an option as the firm may or may not redeem these shares, and the shareholders are aware of such a clause beforehand. These shares are generally given to employees so that once the employee resigns, these can be bought back most often at the issue price.

#4 – Non-Voting Shares

These are like ordinary sharesOrdinary SharesOrdinary Shares are the shares that are issued by the company for the purpose of raising the funds from the public and the private sources for its working. Such shares carry voting rights and are shown under owner’s equity in the liability side of the balance sheet of the company.read more except the fact that there are non-voting rights. These are again used by firms to reward their employees and are paid out as a part of their compensation. The advantage they provide are the tax benefits, employee retention without diluting the voting authority.

#5 – Management Shares

These are the class of sharesClass Of SharesShare class is the company’s bifurcation of its shares into different classes on the basis of their voting rights, privileges, ownership restrictions. For example dividing the common stock into class A shares having the most privileged voting rights and class B shares which have less voting rights.read more that are used by management to retain control of the company. They carry extra voting rights that are usually done by converting multiple votes into a single share. They are very effective in preventing hostile takeovers and other unfavorable circumstances.

Advantages

Disadvantages

Limitations

  • The process of issuing shares has a lasting impact on the firm’s strategy for the long term and hence requires a well-managed investment firm to handle and execute this process.
  • Since shares dilute ownership (especially in case of common stockholders), this might become a case of a hostile takeover.
  • Raising more money becomes challenging, as issuing more shares decreases the EPS, which is not taken well by the existing shareholders.

Important Points

  • The issues shared have an implicit cost. They might provide a mechanism to raise capital at a low cost, but they come with a price as firms might have to relinquish voting rights or predefined minimum dividend.
  • There are many tax and regulatory implications involved in issuing shares.

 Conclusion

Shared Issues are an essential weapon for a firm to attract investments for its growing business. However, each type has its perks and limitations. The management should be wary of all implicit costs and hence carry out the process with proper planning else it may lead to a lengthy legal and regulatory battle.

This article has been a guide to what is Shares Issued and its definition? Here we discuss the types of Shares Issued along with examples, advantages, disadvantages, and limitations. You can learn more about finance from the following articles –

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