Also known as: authorized but unissued share · unissued shares
Written by attorneys · grounded in primary & secondary sources — see below
Shares of a corporation's capital stock that the articles of incorporation authorize the corporation to issue but that have not yet been sold or distributed to any shareholder.
Anchor Bank authorizes 100,000 common shares in its articles but has issued only 60,000. The board approves a sale of 20,000 authorized but unissued shares to a new investor. Existing shareholder Anika Anand claims a right to buy a proportional portion first. The articles contain no preemptive-rights clause, so Anika has no claim to the shares.
A testator devises land to a life tenant with remainder to the testator's heirs, but the will also grants an option to purchase authorized but unissued shares of Apex Dynamics. The option may vest more than twenty-one years after lives in being. The exception for unissued corporate shares prevents the option from violating the rule against perpetuities.
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Avalon Pharmaceuticals buys back 5,000 of its own shares on the open market. The board records the shares as treasury stock. Under the statute the repurchased shares are treated as authorized but unissued and may be reissued without amending the articles.
A settlor creates a trust that will distribute authorized but unissued shares of Apollo Energy to the settlor's grandchildren when the youngest reaches age thirty. The class may increase after the perpetuities period. The exception for unissued corporate shares saves the gift from invalidity under the rule against perpetuities.
Signal negotiates to buy control of UOP. The UOP board approves the sale of 1.5 million authorized but unissued shares to Signal at $21 per share, contingent on a successful tender offer for public shares. The transaction uses only previously unissued shares and does not require shareholder approval of the issuance itself.
Atlas Corp. faces a proxy contest from Blasius. The board issues authorized but unissued shares to a friendly investor to dilute the challenger's voting power. The issuance draws solely on unissued shares and is evaluated under the board's authority to issue such shares without immediate shareholder vote.
Shareholders have no preemptive right to acquire a corporation's unissued shares unless the articles of incorporation expressly provide for such rights. The default rule leaves the decision to issue unissued shares to the board.
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Repurchased shares become authorized but unissued shares unless the articles prohibit reissuance. The corporation may later reissue them without amending its articles to restore the authorized number.
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When the articles authorize the board to classify or reclassify unissued shares and fix their terms, the board may do so unilaterally before any shares of the new class are issued. The board must file articles of amendment before issuance.
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Limitations on unissued corporate shares are exempt from the rule against perpetuities when the limitation is made by the corporation itself. This exception preserves corporate flexibility in capital structure.
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…followed, an understanding was reached between the two companies whereby Signal agreed to purchase from UOP 1.5 million of UOP's authorized but unissued shares for a price of $21 per share. This purchase, however, was made contingent upon Signal making a successful cash tender offer for 4.3 million publicly held shares of UOP, also at a price of…