Four share counts, four different answers to “what do I own?”

Four counts, four denominators

These four terms describe genuinely different quantities, and the difference is not pedantic. Each one produces a different ownership percentage for the same holding, and the spread between them is routinely several percentage points. When a term sheet, an offer letter and a board deck disagree about what someone owns, the usual cause is not dishonesty. It is that three documents quietly used three denominators.

Authorized shares are a ceiling, not an asset

Section 102(a)(4) of the Delaware General Corporation Law requires the certificate of incorporation to state the total number of shares the corporation has authority to issue, and, where there is more than one class, the number of shares of each class. That number is a legal limit. A company that has authorized 10,000,000 shares cannot issue the 10,000,001st without first amending its charter under section 242, which needs a board resolution and a stockholder vote.

The practical consequence is that unissued authorized shares are capacity, not value. They dilute nobody while they sit there, because they belong to nobody. A founder who reads "10,000,000 authorized" and concludes they own a tenth of the company because they hold 1,000,000 shares has made the most common error in this whole topic. Their percentage is measured against shares that exist in someone’s hands, not against the ceiling.

Issued and outstanding: the treasury gap

Issued shares are those the company has actually delivered — sold to an investor, granted to a founder, issued on an option exercise. Outstanding shares are the issued shares still held by somebody other than the company itself. The two numbers are identical right up until the company buys back shares and keeps them rather than retiring them. Those repurchased shares are treasury shares, and they sit in a strange middle state: issued, but not outstanding.

Delaware makes the reason explicit. Section 160(c) provides that shares of a corporation’s capital stock "shall neither be entitled to vote nor be counted for quorum purposes" if those shares belong to the corporation. A share the company holds cannot vote for the company’s own board, and cannot be used to make a quorum. Since outstanding is the count that matters for voting, for dividends and for ownership percentages, treasury shares are excluded from it.

This matters more at startups than people expect, because early-stage repurchases are common. A founder leaves before their shares have fully vested and the company exercises its repurchase right. Those shares go back to the company. Whether they are retired — returned to the pool of unissued authorized shares — or held in treasury changes the outstanding count, and therefore changes everybody else’s percentage.

Fully diluted is a different basis, not a bigger number

Fully diluted is where the confusion becomes expensive, because it is not simply "outstanding plus a bit". It counts things that are not shares and may never become shares: options that have been granted but not exercised, the portion of the option pool that has been authorized but not yet granted to anyone, and warrants. Whether it also counts convertible instruments such as SAFEs and convertible notes depends on who is doing the counting, which is exactly the problem.

There is no single authoritative definition of fully diluted. A term sheet will define it, and the definition it uses is a negotiated term with real economic consequences — particularly the treatment of the unallocated option pool, which is the mechanism behind the option pool shuffle described at /equity/option-pool. Read the definition in the document in front of you rather than assuming the one you are used to.

Now take a holder of 1,000,000 common shares in that company and ask the only question they actually care about: what do they own?

Where the counts go wrong in practice