What does authorized, issued, outstanding, treasury and watered stock refers in corporate law parlance?

Authorized stock is the maximum number of shares a corporation can sell.This number is specified initially in the corporation’s articles of incorporation or other charter documents, but it can be changed with a shareholder approval. A corporation usually sets greater numbers than required to provide flexibility to issue more stock in the future when needed.
Issued stock is the number of shares the corporation actually sells.

Outstanding stock is stock the corporation has authorized, issued, sold and purchased by current shareholders, investors and/or public. It also includes restricted shares owned by the corporation’s officers and insiders.
Treasury stock refers to the corporation’s buyback its own shares in other words treasury stock is stock that was previously issued and repurchased by the corporation and intended for retirement or resale to the public in the future. The financial term “retirement of treasury stock” refers to an action by the corporation that it will not reissue stock to the market.
Treasury stock reflects the difference between the number of shares issued by the corporation and the number of shares outstanding.
What does “par’ stands for?

“Par” refers to a minimum value of the stock issuance determined by the corporation.
If, for example, C corp. issues 10,000 shares of $3 par stock. The corporation must receive at least $30,000, but it can sell them more than $30,000 because $30,000 is the total minimum value.

“No par” means there is no minimum issuance price so that the corporation may sell it for any price.
These values are set by the board directors unless the articles of incorporation allows shareholders to do so.
Watered stock is issuance of stock for less than par value.
For example, C corp. issues 10,000 shares of $3 to X person for $25,000. The corporation or the creditors if the corporation is insolvent (the total liabilities of corporation exceed its total assets) can sue for the $5,000 of “water”.
Directors are also liable for water if they knowingly authorize the issuance of stock.
The X person is also liable because he is charged with the notice of par value in the stock certificate, but the third person who purchased the stock from X person is not liable if he or she didn’t know the “water”.

Published by Metin Caglar, Esq. / Corporate Law Articles