Authorized Capital Stock

This is the maximum share capital that can be sold by a firm. Any change in the amount of share capital has to be approved by shareholders.

Before a share issue, firms will need to get shareholders to agree to increase the size of the authorized capital stock.

Increasing the size of the authorized capital gives the firm the ability to raise funds for investment, but, it also makes it more likely the firm will be takenover. This is why the shareholders need to approve it.