When a company goes public, generally, all the shares don’t go up for sale at once. These shares also go under another name, unissued securities, and while they won’t be making the headlines of any financial news stories, they are worth understanding, whether you are an investor trying to get more into trading or a company that is preparing to secure some equity funding. Here are some of the key fundamentals to keep in mind.
Unissued securities/shares are a specific type of company shares that aren’t on sale on the market and don’t have any voting shares or dividends. From an investor’s perspective, the major relevance factor that they have is that should the company decide to issue them in the future, they may lead to a dilution of value that the shares they already own have. This is why it’s generally a good idea for would-be investors to see how many unissued securities a company has, just to prepare for the future.
However, this may not be as easy as it sounds. This is because unissued securities may not always show up on balance sheets, even though a lot of companies carry them. The reason for this is that company charters tend to allow for further stock shares, just in case there is a need for future flexibility. For example, if a given company was to have 200 securities authorized and then issue out all 200 of those securities on the first day, they would suddenly lose power unless they suddenly amended the charter. In addition, if this happened and you had an interested investor, you would have no shares to give them. This is the role of unissued securities, helping companies be adaptable to different share situations as they arise.
In general, one basic calculation you want to have in mind at any given time is that authorized shares - issued shares = unissued securities/shares.
When it comes to companies and their balance sheets, you have the option to put these on yours or not. Adding authorized shares along with your issued shares allows investors to make the calculation themselves, and it is a subject of interest for some investors and analysts because as we mentioned before, if there are authorized shares yet to be issued, it will dilute the value of issued shares later on.
That doesn’t mean that you can simply authorize an unlimited amount of stocks to never have to worry about these issues. For example, the potential for massive dilution may end up warding off potential investors who think the value of their investment can drop lower than anticipated. In addition, there’s the more practical issue of some areas/regions charging taxes or fees on unissued securities, based on your company structure. Thus, unissued securities are a balancing act for companies.
There is also another variant of unissued securities worth talking about. If you’re not familiar with treasury shares, these are shares that have already been issued and sold, but are then bought back by the company. This can be classified as unissued stock if the company so wishes.
Unissued securities can pose a potential opportunity for interested investors, but it’s important to have a full understanding of what they are, what their value is, and the different applications they have in terms of trading. This is where companies like PrimaryMarkets come in, serving as a global independent marketplace that lets wholesale sophisticated investors take part in secondary trading of securities and investments. In addition, we also help unlisted companies and trusts raise new capital.