Final answer:
Authorized common stock is the number of shares that can be issued as stipulated in a company's charter. It sets the upper limit but includes neither issued shares nor outstanding shares specifically, and it may be altered with shareholder approval.
Step-by-step explanation:
Authorized common stock refers to the total number of shares that can be issued by a corporation. This represents the maximum amount of shares that the company's charter allows it to issue. Authorized stock is specified when a company is incorporated, and any amendment in the number of authorized shares typically requires shareholder approval. This figure is important as it caps the potential equity a company can offer and is often set higher than initially required to give a company room to issue more shares in the future without the need to alter its charter.
It's important to distinguish between authorized, issued, and outstanding shares. Issued shares are those that have been allocated to shareholders and are part of the total authorized shares, while outstanding shares are those currently held by all shareholders, including shares held by the public as well as restricted shares held by the company’s insiders. Shares that have been issued but later repurchased by the company (treasury shares) are not considered outstanding.