Question 46

Authorized shares are the total number of shares that a corporation is permitted to issue.

Authorized shares represent the maximum number of shares that a corporation can issue to shareholders, as specified in its corporate charter.

A) Authorized shares are always greater than outstanding shares.

This statement is incorrect because authorized shares can equal outstanding shares if all authorized shares have been issued and are currently held by shareholders. Therefore, while it is common for authorized shares to be greater than outstanding shares, it is not a definitive requirement.

B) Authorized shares are only permitted to be purchased by existing shareholders.

This statement is misleading. Authorized shares are not limited to purchase by existing shareholders; they can be issued to new investors as well. The nature of authorized shares is about the total allowed issuance rather than the purchasing rules.

C) Authorized shares are the total number of shares that a corporation is permitted to issue.

This statement accurately describes authorized shares, as they represent the total number of shares a corporation is allowed to issue according to its charter. This is the fundamental definition of authorized shares.

D) Authorized shares are permitted to be increased with approval of the corporation's board of directors.

While it is true that a corporation's board of directors can propose an increase in authorized shares, this statement does not define authorized shares themselves. Instead, it describes a potential action regarding them, making it less relevant to the core definition.

Conclusion

The correct answer, C, clearly defines authorized shares as the total number of shares a corporation is permitted to issue, which is fundamental to understanding corporate equity structure. The other options either misinterpret the concept or provide irrelevant information regarding the nature of authorized shares.