TLDR:
Authorized shares are the maximum number of shares a company is legally permitted to issue, as defined in its articles of incorporation, setting the ceiling for equity issuance.
Authorized vs. Issued vs. Outstanding
Authorized shares represent the legal cap. Issued shares are those actually created and distributed. Outstanding shares are issued shares currently held by shareholders (excluding treasury shares the company has bought back). For example, a company might authorize 100 million shares, issue 10 million, and have 9.5 million outstanding (with 500,000 in treasury).
Why Authorized Share Count Matters
Startups must maintain sufficient authorized shares to support future funding rounds, employee option pool expansions, and acquisitions. Running out of authorized shares can delay financings while shareholders vote to increase authorization. Best practice is to authorize substantially more shares than initially needed — Delaware C-Corps commonly authorize 10-15 million common shares at incorporation even if only 1-2 million are issued initially.
Increasing Authorized Shares
Increasing authorized shares requires amending the certificate of incorporation, which typically requires board approval and shareholder vote (often a supermajority). The process involves filing a Certificate of Amendment with the state and paying franchise tax on the increased authorization. In Delaware, franchise tax can be calculated by either the authorized shares method or assumed par value method — choosing the right method can save startups significant money.
Authorized capital in Turkish practice
The authorized/issued distinction has a Turkish counterpart with real transactional value: the registered capital system (kayıtlı sermaye) lets a joint-stock company’s articles set a ceiling within which the board — not the general assembly — can issue new shares for a defined period. For venture-backed companies this is execution speed: rounds and ESOP issuances close on a board resolution instead of a shareholder meeting, with the ceiling and board authorisation renewable. The guardrails: pre-emptive rights still apply (restrictions need the statutory justification and majorities), privileged-share creation has limits, and minority protection doctrines police abuse of the board’s issuance power. Cap-table planning should size the ceiling for the financing roadmap — an exhausted ceiling mid-round reintroduces exactly the general-assembly step the system was chosen to avoid.