Which statement about authorized shares is true?

• A. They are the actual number of shares currently outstanding
• B. They represent the maximum number of shares the board can issue
• C. They are the number of shares held by insiders
• D. They are equal to free float

Answer: (B)

Authorized shares are the maximum number of shares a corporation is permitted to issue, as stated in the charter. This limit sets how many shares the company could issue to raise capital, grant stock options, or issue for other purposes without changing the charter. The actual number currently outstanding is how many shares have been issued and are held by investors (minus treasury shares), not the cap. Insider holdings refer to shares owned by insiders, which is separate from the authorization limit. Free float is the portion of outstanding shares available for public trading, also distinct from the authorization cap. Since authorized shares cap the total that can be issued, the statement that the board can issue up to that maximum is correct.