Final answer:
Treasury stock consists of a company's own shares that have been reacquired and are held by the company, reducing the number of outstanding shares. Unissued stock refers to the authorized shares that remain undistributed and have no impact on the company's financials until issued. These distinctions have important implications for shareholder equity and company control.
Step-by-step explanation:
How treasury stock differs from unissued stock is a key concept in understanding corporate finance. When a company issues stock, it typically does so to raise capital for expansion and development.
However, not all issued stock necessarily remains with external shareholders; a company can repurchase its own shares, creating treasury stock. These repurchased shares are considered held by the company, reducing the amount of outstanding stock in the market and potentially increasing the value of the remaining shares.
On the other hand, unissued stock refers to the shares that have been authorized in a company's charter but have not yet been issued to shareholders at all.
This stock lies dormant until the company decides to issue new shares to raise more capital, subject to the restrictions set by the Securities and Exchange Commission (SEC). Unlike treasury stock, unissued stock does not impact the financials of a company until it is sold and becomes outstanding stock.
It's imperative to understand these distinctions as they have different implications for shareholder equity and control. Treasury stock results from a firm's decision to invest in itself and can be reissued or retired, while unissued stock represents potential for future capital raising opportunities without existing shareholder dilution.