Outstanding stock is shares of stock that is help by investors in a given company. This designation of shares does not include any shares that are still held by the issuer, although any shares owned by officers of the issuing company would also be considered outstanding. These shares of outstanding stock are accounted for in the issuer’s financial records by reporting them on the company balance sheet, typically under the heading of capital stock. Knowing the amount of shares that are outstanding is important when calculating figures like the market capitalization and earnings per share for a given period.
Sometimes referred to as shares outstanding, investors who hold outstanding stock typically hold shares of common stock. This means that investors usually have voting privileges based on the number of shares they hold, as well as other benefits and responsibilities that are defined in the terms of issue associated with those shares. Shares of common stock that are still in the possession of the issuer are sometimes referred to as treasury stock, and are accounted for in the issuer’s accounting records in a manner that allows them to be segregated from shares that are in the possession of investors.
Typically, a company will attempt to balance the number of shares of outstanding stock with the number of shares that are held as treasury stock. The idea is to make sure that the company owners retain controlling interest in the business at all times. This is important for a number of reasons, including the ability to effectively manage the direction that a company takes. At the same time, managing to retain a majority interest in the business helps to strengthen the position of the owners in the event of a hostile takeover attempt.
In many nations, investors who secure over a certain percentage of outstanding shares issued by a specific company must file documents with a government regulatory agency. While the content of those documents vary, some do require that the investor identify the intent behind the purchases. This is often one of the ways that company owners learn of an impending takeover attempt, allowing them to launch their own campaign to repurchase as many shares of outstanding stock as possible before the corporate raider is able to acquire those shares. Doing so helps to neutralize the takeover attempt since the raider is unable to acquire enough shares to force any particular action that would make the takeover possible.