9/2/2023 0 Comments Stock float![]() Depending on how the company defines its closely held shares, it may not be legal to trade these shares with the general public.Ī company can diversify its shares in many different ways. ![]() These shares are traded privately, between individuals rather than on the open market, and rarely come available for general trading. Whatever the details, restricted stock is not traded on the open market.Ĭlosely held shares are generally owned by company insiders and accredited investors. These shares almost always come with restrictions on how and when you can trade them hence the term “restricted stock.” The two most common restrictions are: Vesting rules, which define when you are allowed to sell the stock, and buyer rules, which require you to sell this stock only to the company that issued it. For example, if some of your compensation is paid in stock then the better the company does, the better you do. They are used as part of compensation and incentive packages, generally intended to align the employee’s interests with the company’s. Restricted stock refers to shares of stock that the company has issued to its own employees and executives. Often companies will issue what is known as “restricted” stock and “closely held” stock. This is the number of outstanding shares less the number of restricted or closely held shares, and it represents the company’s overall liquidity. To understand this it’s important to understand that not all shares of stock are created equal. What Is Floating Stock?įloating stock, sometimes known as the “public float,” is the number of shares that a company has issued for general trading. This gives it the flexibility to make new stock offerings in the future. A company can, however, issue fewer outstanding shares than its authorized shares. The number of outstanding shares can never exceed the number of authorized shares. A company’s authorized share number is generally defined in its articles of incorporation and can be changed by the shareholders. The maximum number of shares that a company can ever legally issue is called the firm’s authorized shares. However, a company can issue new stock in the future, expanding the number of outstanding shares by releasing new ones on to the market or it can buy back shares and remove them from the market altogether, reducing the number of outstanding shares. During the company’s IPO it sets the initial number of shares that it will issue. The number of outstanding shares that a company has can change over time. From our example above, say, the company decided to release 50% of its ownership in the form of 100 shares. When a company releases shares of stock it decides how much of the company’s ownership it wants to sell and how many shares to release. In this case, each person who buys one share of stock would own 0.5% of the company. For example, say a company releases 50% of its total ownership in the form of 100 shares of stock. Each share of stock in a company measures a percentage of ownership in that company overall.
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