Having a basic understanding of share count is one of the most fundamental requirements for any would be investor and, on the flip side of that, any entrepreneur. However, the terminology to decipher share count can be very confusing, however relatively easy to explain.
On the very top level all companies, if you read through their incorporation papers have a section that is titled “Capital Stock”, and in this section they have a number of shares that the company is allowed to issue – this is actually somewhat of an arbitrary number, it might be 100 million, maybe 500 million, it’s relatively meaningless other than that is the total number of shares that COULD be issued / sold. This is the total authorized shares.
Shares outstanding is the next progressive level down in the share count and perhaps the most important one, it represents the shares that have been sold and or given to founders, it is the total number of shares that might potentially be in the market.
Outstanding shares can be basic, or fully diluted. Basic shares outstanding include those shares that might be trading on the open market and those that are restricted and held by founders / insiders, etc. Fully diluted shares include convertibles, warrants and any capital notes – think of these as derivative shares, or shares on reserve that could come on to the market at a future date. Obviously it’s important to know what the fully diluted share count is because any conversion or exercise could adversely affect share price (more shares available, price goes down).
Shares Issued is kind of an off shoot of outstanding, shares issued represent all outstanding shares, plus any shares that the company might hold in its treasury (its own bank account), from time to time companies buy back their own shares and hold on to them, maybe it’s to boost share price, maybe it’s to reward employees, any number of reasons.
On the lowest rung of the share count ladder is the Public Float, this number represents those shares that are actually out on the public market and actively traded.