Unissued Stock Definition
What is a treasury share?
Unissued shares are company shares that are not circulating and have not been offered for sale to employees or the general public. As such, companies do not print stock certificates for unissued shares. Unissued shares are normally held in a company’s treasury. Their number generally has no impact on shareholders.
Key points to remember
- Unissued shares are a class of shares of the company that do not circulate or are not offered for sale by the company in the market.
- The number of unissued shares can be calculated by subtracting the outstanding shares plus treasury shares from the total number of authorized shares.
- Unissued shares may not be relevant to current shareholders as they are not eligible for voting rights and do not receive dividends.
- Unissued shares can indicate the potential for events or developments that could dilute a company’s earnings per share.
Understanding treasury shares
When a company goes public, it authorizes the creation of a certain number of shares in its charter or articles of association. These actions are called authorized actions. Authorized shares consist of all shares created, including shares offered for sale to investors and issued to employees, as well as shares not offered for sale. The first is called outstanding shares, while the second is called treasury shares. Companies do not print certificates for unissued shares, which are held in company treasury.
The number of unissued shares can be calculated by taking the total number of shares authorized to be issued and subtracting it from the total number of shares outstanding, plus the treasury shares from the total number of authorized shares. Own shares are shares bought back by a company.
Unissued shares are not relevant to shareholders, in the sense that these shares do not carry voting rights and do not receive dividends. But that can change, as they represent the possibility of a dilution of the value of the existing shareholding – and therefore of the value of the share – if the company chooses to issue additional shares in the future.
Unissued shares can dilute existing shareholder value if a company decides to release more shares in the future.
Analysts and investors keep a close eye on a company’s plans to issue previously unissued stock. Financing plans that provide for the issuance of shares could have a dilutive effect on the company’s earnings per share (EPS).
Although they represent a potential source of ownership and earnings dilution for investors, treasury shares are not included in diluted earnings per share calculations. But earnings per share calculations take into account the potential for converting securities into shares as well as stock options granted but not yet exercised.
Unissued shares against treasury shares
Unissued shares are generally not the same as treasury shares. Treasury shares represent all shares that have already been issued and sold but have subsequently been repurchased by the company. But the lines between the two can be slightly blurred, as some companies may choose to list these shares as treasury shares.
Companies that choose to list treasury stock as treasury stock have corporate charters that allow for the issuance of large numbers of stock to provide maximum flexibility in the event that future sales of actions would be required. A company may disclose in the notes to its financial statements that it is authorized to issue 10 million shares, but only a fraction of that amount may be both issued and outstanding.
Let’s take a real example. A 2016 8-K filed with the Securities and Exchange Commission (SEC) by Dollar Tree (DLTR) states: “Stocks purchased under stock repurchase authorizations are generally held in cash or are canceled and revert to shares authorized but not issued. “