Question

What’s the difference between shares issued and shares outstanding ?

Answer 1

Shares issued is the total number of shares allocated/allotted by the company to the shareholders at large. Shares are issued out of the total authorised capital of the company. Initially, a company issues the shares to the outside shareholders for a price and collects the money. Subsequently it can buy back the shares from some of those shareholders to reduce the shareholding in the company. Please note that here the company itself is buying back the shares from the shareholders and it is not one shareholder selling shares to another shareholder.

So after a company buys back its shares, it may not retire the shares for some time, that is reduce the issued shares. So those shares are not oustanding to outside parties and hence not included in the calculation of shares outstanding.

Let me give you a simple example. Company Z has authorised share capital of $1000. For the sake of simplicity, lets say these are shares of face value $1 each. Out of $1000, $800 worth of shares are issued to A, B, C and D, with 200 shares worth $200 issued to each one of them. So now the company has issued share capital of $800.

After 1 year, company offers to buyback the shares from shareholders. Again for simplicity lets assume the shares buyback is offered for same value and there is no premium involved. Normally company offers some premium over issued value to tempt the shareholders to give back the shares. But here there is no premium. So A sells back all $200 worth of shares to company Z. The company pays $200 to A and holds the shares as "Treasury Stock" in its balance sheet.

The special name given is treasury stock because in general sense, a company cannot hold its own shares as it is only a artificial person. The treasury stock has not been retired but the outstanding liability to outside parties now reduces from $800 to only $600. Share money received from shareholders is always a liability because the company is liable to payback that amount to the shareholders in case of winding up of the company, after discharging all its liabilities.

So now the issued shares are worth $800 but outstanding shares are only $600, the difference been treasury stock worth $200 being held by the company.