The terms “issued and outstanding” shares and “fully diluted” shares are commonly used when discussing how much of the company team members and investors will own when they receive equity.

“Issued and outstanding” shares means all of the the shares which a company has actually issued to its shareholders. If the company has issued different classes of shares, this term refers to all classes of shares, such as ordinary and preferred shares.

This term does not include options and convertible instruments which give the holder the right to acquire shares. The shares only become issued and outstanding when the holder exercises his or her right to buy them and becomes a shareholder.

“Fully diluted” shares means all of the issued and outstanding shares and also any options and convertible instruments which entitle the holders to acquire shares in the company in the future . Essentially, it treats all options and convertible instruments as if they have already been exercised and the shares issued.

Broadly, the fully diluted figure shows the equity the company has already given away or promised to give away. Which term you choose to use in discussions on company ownership with recipients of equity may depend on the circumstances and context, but it is simplest to talk about a share amount and refer to this on a fully diluted basis.

If you refer to a shareholder’s ownership interest on a fully diluted basis, you are giving a more accurate reflection of the ownership position of that shareholder. If you refer to a shareholder’s ownership interest as a percentage of shares that are issued and outstanding, this can be misleading as at some point in the future the percentage will likely change (for example when options are exercised).