| What You Should Know about Different
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| | Float – 70 (100 – 20 – 10 = 70)
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| Share Types
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| | Outstanding Shares – 80 (10 + 70 = 80)
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| Not all shares of stock are created
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| | Why is this Important?
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| equally. Authorized, restricted, float,
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| | Here are several key bits of information
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| outstanding and treasury shares all have
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| | you can determine from looking at how
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| different attributes. Investors need to
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| | these different share types stack up in
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| know these terms to make informed
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| | relation to each other:
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| decisions.
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| | Look at the relationship of treasury
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| You will hear these terms and see some of
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| | shares and restricted shares to float for
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| them used in financial ratios, so it is
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| | where controlling interest of the company
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| important to understand how these types
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| | will reside. Many companies retain a
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| of shares differ.
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| | large percentage of the authorized shares
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| First, let’s define the terms, and then
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| | in their treasuries or in the hands of
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| I’ll explain why it is important to
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| | management through restricted shares.
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| understand the difference.
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| | Companies do this to make sure no other
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| Authorized Shares – These shares
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| | company can seize control in an
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| represent the total number of shares of
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| | unfriendly takeover. They may also want
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| stock authorized when the company was
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| | to have stock handy for future issue
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| created. Only a vote by the shareholders
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| | instead of using debt to buy another
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| can increase this number of shares.
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| | company or for another major expenditure.
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| However, just because a company
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| |
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| authorized a certain number of shares
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| | Controlling interest held in treasury
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| doesn’t mean it must issue all of them
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| | stock means outside shareholders will
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| to the public.
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| | have little influence over the decisions
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| Employee Stock Options
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| | of the company.
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| Get smarter about taxes & planning
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| | If the float of a company is very small
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| options and restricted stock tools
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| | and the stock attracts attention of
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| www.mystockoptions.com
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| | investors it can become volatile because
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| Most companies retain shares for use
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| | of supply and demand imbalances.
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| later called treasury stock or shares.
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| | More buyers will drive the price up,
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| Treasury Shares – Shares a company
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| | which is not a bad thing if you own the
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| retains in its treasury and not issued to
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| | stock. However, it may make the stock
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| the public or to employees are treasury
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| | over priced relative to its earnings or
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| stock.
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| | other fundamental measures.
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| Restricted Shares – Restricted shares
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| | Likewise, if the stock falls out of
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| refer to company stock used for employee
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| | favor, sellers may have trouble unloading
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| incentive and compensation plans.
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| | their shares, which would tend to force
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| Restricted stockowners need permission of
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| | the price down further and more rapidly
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| the SEC to sell.
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| | than fundamentals might indicate.
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| There is a waiting period after a company
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| | Watch what restricted shareholders do.
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| first goes public where insiders’
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| | You can get this information from a
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| restricted stock is frozen. When insiders
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| | variety of online sources. Here is a link
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| want to sell their stock, they must file
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| | to MSN Money’s insider trading search
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| a form with the SEC declaring their
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| | function. Just enter a stock symbol and
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| intention. Even insiders of established
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| | it will return the most recent sales or
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| companies must file with the SEC before
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| | planned sales by insiders or major
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| selling their restricted stock.
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| | shareholders.
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| Float Shares – Float refers to the
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| | Most of the time, these sales signal
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| number of shares actually available for
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| | nothing of interest to investors. When a
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| trade on the open market. You and I can
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| | large number of insiders, especially in
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| buy these shares.
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| | young companies, file plans to sell major
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| Outstanding Shares – Outstanding shares
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| | blocks of stock it could signal trouble.
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| includes all the shares issued by the
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| | Notice when reading financial ratios
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| company, which would be the restricted
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| | whether they are using float or
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| shares plus the float.
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| | outstanding shares in the calculation. It
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| Here’s a simple example with numbers to
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| | can make a big difference in the outcome.
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| illustrate the relationship of these
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| different shares:
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| | Conclusion
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| Authorized Shares – 100
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| | Understanding the terms used to describe
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| Treasury Shares – 20
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| | various shares will help you get a better
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| Restricted Shares – 10
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| | handle on analyzing companies.
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