Unissued Stock: What it is, How it Works

What Is Unissued Stock?

Unissued stock are company shares that do not circulate, nor have they been put up for sale to either 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 typically has no bearing on shareholders.

Understanding Unissued Stock

When a company goes public, it authorizes a certain number of shares to be created in its charter or articles of incorporation. These shares are referred to as authorized stock. Authorized stock is comprised of all stock that has been created, including shares up for sale to investors and issued to employees, as well as any shares not up for sale. The former is called outstanding stock, while the latter is referred to as unissued shares. Companies do not print up certificates for unissued stock, which are held in the company's treasury.

The number of unissued shares can be calculated by taking total shares authorized for issuance and subtracting this from total shares outstanding, plus treasury stock from the total number of authorized shares. Treasury stocks are the shares repurchased by a company.

Unissued shares are not relevant to stockholders, in the sense that these shares do not qualify for voting rights nor do they receive dividends. But this can change, as they represent the possibility for a dilution in the value of existing shareholder ownership—and thus share value—should the company choose to issue additional shares of stock in the future.

Analysts and investors closely monitor a company's plans for issuance of previously unissued shares. Funding plans that call for issuance of shares could be dilutive to the company's earnings per share (EPS).

Though they represent a potential source of ownership and earnings dilution for investors, unissued shares are not included in fully diluted earnings per share calculations. But earnings per share calculations do take into account the potential for convertible securities to be converted into equity as well as stock options granted but not yet exercised.

Unissued Stock vs. Treasury Shares

Unissued stock is generally not the same as treasury stock. Treasury stock represents any shares that have already been issued and sold but have subsequently been repurchased by the company. But the lines between the two may be slightly blurred, as some companies may choose to list these shares as unissued stock.

Companies that choose to list treasury shares as unissued stock have corporate charters that allow for the issuance of a large number of stock shares to provide maximum flexibility in the event future stock sales are needed. A company might disclose in the notes of its financial statements that it has the authorization to issue 10 million shares, but only a fraction of that amount might be both issued and outstanding.

Let's look at a real example. A 2016 8-K filed with the Securities and Exchange Commission (SEC) by Dollar Tree (DLTR) states: "Shares purchased under the share repurchase authorizations are generally held in treasury or are canceled and returned to the status of authorized but unissued shares."