Two customers can both say they own stock and still hold very different claims. One has a vote and whatever remains after everyone else is paid. The other has a set dividend, a better place in line and usually no vote.
Every corporation tracks four share counts:
- Authorized stock: The most shares the charter lets the company sell. Raising that number takes a stockholder vote to amend the charter.
- Issued stock: Shares the company has actually sold to investors.
- Treasury stock: Issued shares the company has bought back and still holds.
- Outstanding stock: Issued shares still in investors' hands.
Issued shares equal outstanding shares plus treasury shares. Authorized stock is only a ceiling, so it never enters per-share math.
Here is how buybacks create treasury stock. The company spends cash to repurchase its own shares and holds them in its treasury. Treasury shares carry no vote and receive no dividend, because a company cannot vote for itself or pay itself. The company may later reissue or retire them.
Common mistakes
- Using issued shares instead of outstanding shares. At Harbor, 12,000,000 × $0.40 = $4,800,000 overstates the dividend payout by $800,000, because treasury shares receive nothing.
- Assuming cumulative voting creates extra votes. Both methods give shares times seats, which is 3,000 × 3 = 9,000 at Harbor. Cumulative voting only lets you stack them.
- Treating Rule 2114 as a penny stock rule. It reaches any non-NMS equity security, but only recommended purchases and short sales, and a $50 bid exempts the security.
Bottom line
- Issued shares equal outstanding plus treasury shares; only outstanding shares vote, receive dividends and count toward market capitalization.
- Common holders have votes, pro rata dividends once declared, preemptive rights where granted, books and records access, limited liability and the last claim in liquidation.
- Total votes equal shares times seats; statutory voting caps each candidate at the share count, while cumulative voting lets a holder put every vote on one candidate.
- Under Rule 3a51-1, any equity security is a penny stock unless excluded: price of $5 or more, a qualifying exchange listing, net tangible assets over $2 million ($5 million if under three years), or average revenue of at least $6...
Exam shortcut
If a stem lists authorized, issued and treasury figures, cross out authorized and subtract treasury from issued before doing any per-share math. On voting stems, multiply shares by seats first. Words like "minority holder" or "concentrate votes" point to cumulative voting. On penny stock stems, ask three questions in order. Is the stock excluded? Was the trade unsolicited, or is the customer exempt? Is the customer established?
The full lesson (about 4,940 words, 33 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C13
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