What does authorized stock represent?

Authorized stock represents the total number of shares that a company is legally allowed to issue to investors as stipulated in its corporate charter. This figure is established during the formation of the company and can later be changed through shareholder approval.

Understanding authorized stock is crucial for investors and stakeholders, as it indicates the maximum potential shares that could be issued, which can impact ownership dilution, market capitalization, and the company's ability to raise capital in the future.

While it is also relevant to note the number of shares that can be sold, this is inherently linked to the total authorized shares, giving a broader perspective of the company’s capacity to generate funds through equity financing. Current shares held by shareholders or shares traded on the market pertain to different aspects of stock dynamics, focusing more on ownership distribution and market activity rather than the foundational authority for share issuance.