# Fully diluted shares **Author:** The Carta Team **Read time:** 3 minutes **Published date:** December 3, 2024 Learn what fully diluted shares are and how to calculate your company's fully diluted share count. We'll also explain key differences between fully diluted shares, authorized shares, and outstanding shares. ## Contents - [Fully diluted shares](#fully-diluted-shares) - [What are fully diluted shares?](#what-are-fully-diluted-shares) - [Fully diluted shares vs. authorized shares](#fully-diluted-shares-vs-authorized-shares) - [Fully diluted shares vs. outstanding shares](#fully-diluted-shares-vs-outstanding-shares) - [Earnings Per Share](#earnings-per-share) - [How to calculate fully diluted shares](#how-to-calculate-fully-diluted-shares) - [Share dilution and why “fully diluted shares” matter](#share-dilution-and-why-fully-diluted-shares-matter) Shares of [common stock and preferred stock](https://fund-forecasting@carta.com/learn/equity/common-stock-vs-preferred-stock/) are the two main [types of equity compensation](https://fund-forecasting@carta.com/learn/equity/compensation/) issued by private companies and [startups](https://fund-forecasting@carta.com/learn/startups/). Generally, shares of common stock are issued to founders and employees, while shares of preferred stock are issued to investors. To describe a company’s stock, you may come across terms like “issued and outstanding shares,” “fully diluted shares,” or “ total “authorized shares.” These terms refer to different ways to scope the [equity in your company](https://fund-forecasting@carta.com/learn/equity/). ## What are fully diluted shares? **The fully diluted share count** is the total common share equivalent (common stock, plus preferred stock calculated as if it was converted into common stock) of all equity that has been issued or is expected to be issued by a company. A full dilution calculation includes outstanding shares plus potential shares from the conversion or exercise of convertible securities like employee [stock options or warrants](https://fund-forecasting@carta.com/learn/equity/stock-options-vs-warrants/). The fully diluted count also includes the total number of shares in a [company’s option pool](https://fund-forecasting@carta.com/learn/startups/equity-management/option-pool/). Fully diluted shares are an [important metric](https://fund-forecasting@carta.com/learn/startups/metrics/) to help you understand the value of your equity percentage and to calculate diluted earnings per share. There are several other ways to count equity, including the authorized share count or the number of outstanding shares. ### Fully diluted shares vs. authorized shares **The authorized share count** is the maximum number of shares a company is legally allowed to issue, outlined by its [incorporation documents](https://fund-forecasting@carta.com/learn/startups/private-companies/incorporation/articles-of-incorporation/). ### Fully diluted shares vs. outstanding shares **The outstanding share count** is the amount of stock that has been issued and is currently held by shareholders. It does not include equity that is not yet converted or exercised into stock, such as [warrants](https://fund-forecasting@carta.com/learn/equity/stock-warrants/), [options](https://fund-forecasting@carta.com/learn/equity/stock-options/), [restricted stock units (RSU)](https://fund-forecasting@carta.com/learn/equity/rsu/), or stock appreciation rights (SAR). Typically, only outstanding stock has voting rights, while [convertible securities](https://fund-forecasting@carta.com/learn/startups/fundraising/convertible-securities/) that have not yet been converted or [exercised](https://fund-forecasting@carta.com/learn/equity/stock-options/exercising/) do not. (However, this is dependent on each company’s specific incorporation document). ## Earnings Per Share The distinction between outstanding shares and fully diluted shares is important when you are calculating earnings per share, an important metric for understanding the profitability of the company. **Basic earnings per share** is the net income of the company divided by outstanding shares, while **diluted earnings per share** is the net income divided by the fully diluted share count. ## How to calculate fully diluted shares You can calculate your fully diluted share count with the formula below: **Fully Diluted Shares = Number of Common Shares Outstanding + Convertible Securities + Stock Options + Warrants + The Option Pool** If your company uses [Carta for equity management](https://fund-forecasting@carta.com/equity-management/?ir=learn_corps_fully-diluted-shares_mid_text/), you can view the fully diluted share count when viewing your [cap table](https://fund-forecasting@carta.com/learn/startups/equity-management/cap-table/) by share class. ## Share dilution and why “fully diluted shares” matter Share dilution is the decrease in ownership percentage for existing shareholders when a company issues or reserves new shares of stock. Therefore, when an [investor](https://fund-forecasting@carta.com/learn/startups/fundraising/investors/), founder, employee, or any other shareholder is trying to understand what percentage of ownership they own in a company, it is usually most accurate to think about that percentage on a fully diluted basis. For example, let’s say you use the fully diluted share count to calculate how much equity you own in your company. If you determine you own 1% of the company using full dilution, then that ownership percentage won’t change in the future—even as your co-workers exercise their options, or if a new hire is granted equity from the option pool. Alternatively, if you calculated your ownership percentage based on outstanding shares, such actions would [dilute](https://fund-forecasting@carta.com/learn/startups/equity-management/share-dilution/) your percentage ownership.