Issued and Outstanding Shares

When a corporation issues shares in exchange for payment, the person or entity that purchased the shares becomes a stockholder. The corporation then notes in its stock ledger that these shares are owned. The shares are referred to as issued and outstanding.

Fully Diluted Shares

When a corporation grants someone the right to buy shares later, such as granting a stock option to an employee, those shares are not yet issued and outstanding. The shares do not appear on the corporation’s stock ledger, and a person does not become a stockholder by holding them. If the option is exercised, however, the shares would then become issued and outstanding and the person would become a stockholder.

The unallocated option pool is not considered issued and outstanding.

whether a company calculates ownership based on the issued and outstanding shares or on a fully diluted basis may depend on the context for the calculation. Most importantly, however, the parties involved should clearly express their expectations and use the same method of calculation.