2.6 Categories of Shares

DIFFERENT CATEGORIES OF SHARES ARE

Authorised Shares

These shares represent the total number of shares or stock authorised when the company was created. Only a vote by the shareholders can increase this number of shares. However, just because a company authorised a certain number of shares doesn’t mean it must issue all of them to the public. Most companies retain shares for use later and these are called unissued stocks or shares.

Unissued Shares

Shares a company retains in its treasury and are not issued to the public or to employees are unissued shares.

Restricted Shares

Restricted shares refer to the company stock used for employee incentive and compensation plans. Restricted stock owners need permission of the SEBI to sell. There is a waiting period after a company first goes public during which insiders’ restricted stock is frozen. Even insiders of established companies must file with the SEBI before selling their restricted stock.

Float Shares

Float refers to the number of shares actually available for trading in the open market. You and I can buy these shares.

Outstanding Shares

Outstanding shares include all the shares issued by the company, which would be the restricted shares plus the float shares.

Let’s explain this with an example of a company called ABC:

This company has 1000 authorised shares. If they offered 300 shares in an IPO, gave 150 to the executives and retained 550 in the treasury, then the number of shares outstanding would be 450 shares (300 float shares + 150 restricted shares). If after a couple years ABC was doing extremely well and wanted to buy back 100 shares from the market, the number of outstanding shares would fall to 350, the number of treasury shares would increase to 650 and the float would fall to 200 shares since the buyback was done through the market (300 - 100).