Corporation Shares Outstanding

The unit of ownership in any company is called a share of the company or stock and shares outstanding are those shares held by the public and those shares owned by the company staff and insiders. This will be shown in the number of shares the company will be projecting as ‘Capital Stock.’ Sometimes the company repurchases the shares it had issued, but these cannot be considered as shares outstanding. This is an important entity affecting the price of the stock as these outstanding shares are used to calculate earnings per share (EPS) and capitalization etc. and it affects the public demand for the company shares.

Diluted Shares

Shares outstanding can be divided in two sections - termed as basic diluted shares or fully diluted shares. Convertibles, warrants and options come under the diluting securities. These are part of the common shares that have been authorized to be sold by the company, issued and purchased by the investing public. Every investor who has shares outstanding can vote and represent ownership.

Types of Shares Outstanding

Two types of shares are called shares outstanding - preferred shares and common shares. People with common shares have voting rights and a share of the profits, whereas preferred shareholders receive a fixed dividend without any voting rights and no part of the profits of the company. In case of company failure, preferred shareholders have priority in receiving dividends or proceeds from the sale of assets etc. Preferred stock is considered as a hybrid instrument – of both an equity and debt instrument. Sometimes preferred stock may be converted to common shares.

Restricted Shares or Stocks

Restricted shares/securities or restricted stock or letter stock are those stock which cannot be fully transferred to the holder until certain conditions are met. Restricted shares are included in the shares outstanding of the company.  Those shares which are not restricted and are available for sale to the public in share market are called ‘float’. When company repurchases the issued shares, they are called ‘treasury stock’. All these shares – authorized, issued and outstanding and treasury shares will be shown as capital.

More and more of late, restricted shares are being considered as compensation to company staff, officers and other insiders.  These shares are restricted from being sold though sometimes this condition is waived. Generally the restricted shares will be brought back by the company itself.  Or sometimes they will be able to sell them to public through a government agent after being registered with them. Actually SEC has to sanction both the purchase and sale of restricted shares.

When company staff and insiders are compensated with restricted shares, they are calculated on performance conditions like the company reaching the financial goals. What was previously favoured but no longer now was the stock option for the executives. In lieu of that, nowadays, restricted stock awards are being given.  They have more benefits income tax wise than the stock options. There are options available for tax deferral till such time of sale etc.

These are different types of stocks shares which play a great role in making a company a success or a failure.

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