What is Authorized Capital Stock?

Authorized capital stock is the maximum number of shares that a corporation is legally allowed to issue. This restriction applies to both common stock and preferred stock. The number of authorized shares is initially set in a company's articles of incorporation, and can be increased thereafter if a majority of the shareholders approve of the change. The number of authorized shares is usually kept relatively high, so that management has the option to sell additional shares to investors on short notice.

The restricted shares issued by a business are included in the total amount of authorized capital stock.