Corporate Finance & Accounting

unissued shares

What are unissued shares?

Unissued stock is company stock that is not outstanding and has not been sold to employees or the public. Therefore, the company does not print stock certificates for unissued shares. Unissued shares are usually kept in the company’s treasury. Their numbers are usually not relevant to shareholders.

key takeaways

  • Unissued stock is a class of company stock that a company has not traded or sold in the market.
  • The number of outstanding shares can be calculated by subtracting outstanding shares plus treasury shares from the total number of authorized shares.
  • Unissued shares may not be relevant to current shareholders because they are not eligible for voting rights and do not receive dividends.
  • Unissued shares may indicate events or developments that could dilute the company’s earnings per share.

Understanding Unissued Shares

When a company goes public, it authorizes the creation of a certain number of shares in its articles of association or articles of association. These shares are called authorized shares. Authorized shares consist of all shares created, including shares available for sale by investors and issued to employees, and any shares not sold. The former are called outstanding shares and the latter are called unissued shares. The company does not print certificates for unissued shares, which are held in the company’s vaults.

The number of unissued shares can be calculated by subtracting the total number of shares authorized to issue minus the total number of issued shares minus the total number of authorized shares plus treasury shares. Treasury stock is stock that a company buys back.

Unissued shares are irrelevant to shareholders because they do not have voting rights and do not receive dividends. But that could change, because if the company chooses to issue additional shares in the future, they represent the potential for dilution of existing shareholders’ ownership value (and thus share value).

If the company decides to issue more stock in the future, the unissued stock could dilute existing shareholder value.

Analysts and investors are closely watching the company’s plans to issue previously unissued shares. Financing plans that require stock issuance can dilute a company’s earnings per share (EPS).

Although they represent a potential source of investor ownership and earnings dilution, unissued shares are not included in fully diluted earnings per share calculations. But the EPS calculation does take into account the possibility of converting the convertible securities into equity as well as stock options granted but not yet exercised.

Unissued and treasury shares

Unissued stock is usually not the same as treasury stock. Treasury stock represents any stock that has been issued and sold but subsequently repurchased by the company. But the line between the two can be a little blurry, as some companies may choose to list the shares as unissued.

Companies that choose to list treasury stock as unissued have articles of incorporation that allow for the issuance of large amounts of stock to provide maximum flexibility if the stock needs to be sold in the future. A company may disclose in the notes to its financial statements that it has the right to issue 10 million shares, but only a fraction of them may be both outstanding and unissued.

Let’s look at a real example. Dollar Tree’s (DLTR) 2016 8-K filing with the U.S. Securities and Exchange Commission (SEC) stated: “Shares purchased under stock repurchase authorizations are generally held in the treasury or cancelled and reinstated as authorized but unissued stock status.”

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