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| Float |
Float refers to the outstanding shares held by outsiders, usually reported as a percent of the total shares outstanding. A corporation (usually the board of directors) will authorize a certain number of shares. This authorization permits the company to issue shares, but most companies issue fewer than the total number of authorized shares.
From time to time, the company will sell some of the authorized shares. The company might sell shares by registering an offering, and then selling through an initial or secondary offering.
The company may also issue authorized shares as private equity, sell shares through employee stock purchase plans and employee stock option plans, or issue shares on exercise of convertible bonds or preferred stock options. Some companies sell shares to existing shareholders through dividend reinvestment plans (DRIPs).
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Many companies buy their shares. A company may buy registered shares in the open market or from holders to support the value of their shares or to buy shares to distribute through employee stock option plans. A company may reacquire restricted shares if an employee leaves the company before the full vesting date.
Shares issued by a company increase the number of shares outstanding. The company can retire the shares reacquired but, by convention, these shares are held by the company as treasury stock. In either case, the number of shares outstanding decreases by the number of shares acquired.
Employees, family members, managers, and members of the board of directors often hold significant positions in a company’s stock. For a variety of reasons, these owners may be motivated differently than other shareholders.
Employees, managers, and board members are more likely to vote as directed by the management. Sometimes, these stakeholders have an interest in preserving the status quo (including their jobs), rather than maximizing the shareholder’s welfare.
Family members and other large holders may have controlling positions that are more valuable because of the control, and so may be less likely to sell their shares at a particular price. Also, this group may have large deferred capital gains that discourage them from selling.
The percent of shares not held by insiders provides a rough measure of the amount of control held by insiders. It also provides a measure of the chance that a hostile company could force a takeover.
