Authorized, issued, outstanding, fully diluted: the four numbers everyone confuses

Four numbers, similar names, genuinely different meanings. Get them straight once and most cap table confusion disappears.

We will use one company throughout — the one from part 1, now with an option pool.

The company

Item	Shares
Authorized	15,000,000
Issued and outstanding	10,100,000
Option pool reserved	1,500,000
— of which granted	600,000
— of which unallocated	900,000
Fully diluted	11,600,000

1. Authorized — the ceiling

The maximum number of shares the company is legally permitted to issue, set in the charter. Here, 15,000,000.

Authorized shares are not owned by anyone. They are permission. Of the 15,000,000 authorized, 10,100,000 are issued and 1,500,000 are reserved for the pool, leaving 3,400,000 authorized but unissued — headroom for the next round without a charter amendment.

Raising this number requires a board and usually a shareholder approval. It is a five-minute agenda item that becomes a two-week delay when you discover mid-round that you are out of headroom.

2. Issued — shares that have been created and given out

Shares actually brought into existence and held by someone: 10,100,000 — the founders’ 10,000,000 and the advisor’s 100,000.

3. Outstanding — issued, minus anything the company bought back

If the company repurchases shares, they become treasury stock: still issued, no longer outstanding, and they do not vote or receive dividends.

Most startups never do this, which is why issued and outstanding are used interchangeably. Here both are 10,100,000. Just know the distinction exists, because the moment you repurchase a departing founder’s shares the two numbers separate.

4. Fully diluted — everything that could exist

Outstanding shares plus everything already committed that turns into shares:

  10,100,000   outstanding shares
+  1,500,000   option pool (granted AND unallocated)
──────────────
  11,600,000   fully diluted

Note the pool counts in full, including the 900,000 nobody has been granted yet. That feels wrong the first time — those shares belong to no one — but it is the conservative convention, and it is what an investor means when they say “10% fully diluted.”

Your percentage has two correct answers

Founder A holds 6,000,000 shares:

Basis	Maths	Percentage
Of outstanding	6,000,000 ÷ 10,100,000	59.41%
Fully diluted	6,000,000 ÷ 11,600,000	51.72%

Both are right. They answer different questions: how much of the voting stock do I hold today versus how much of the company will I own once everything promised has been issued.

Nearly every ownership argument between founders and investors is one side quoting outstanding and the other quoting fully diluted. Always say which basis you are using. In a term sheet, assume fully diluted unless it explicitly says otherwise.

Where SAFEs hide

One more wrinkle: SAFEs and convertible notes are usually not in the fully diluted count, because nobody knows how many shares they become until they convert — that depends on the price of a future round.

So a company can have a clean fully diluted number and still be carrying $1.5M of SAFEs that will take another 15% at the next round. It is real dilution, invisible on the cap table until it happens. Part 6 of this series does that maths in full.

The five-second sanity check

Before you send a cap table anywhere:

1. Do the percentage columns sum to 100%? (Rounding means 99.99% or 100.01% — fine.)
2. Is fully diluted ≥ outstanding? (If not, something is missing.)
3. Is authorized ≥ outstanding + pool reserved? (If not, you cannot legally issue the pool.)
4. Does granted + unallocated equal the reserved pool? (This is the one that is wrong most often.)

Four checks, thirty seconds, and they catch the majority of real errors.

Next

Part 3 is the option pool: how it is sized, why investors insist it is created before their money goes in, and exactly what that timing costs founders in percentage points.