A weird archaism of American corporate law is that companies have to write down, fairly early in their histories, the maximum number of shares of stock they can have outstanding, and then that number can only be changed by a vote of shareholders. You’re in your garage setting up your little startup — or, more plausibly, you’re taking that startup public as a medium-sized company — and the lawyers are like “what is the most shares you could ever possibly want to issue” and you’re like “I dunno, two billion?” You pick some comically large number and then, you hope, never worry about it again. And then sometimes things go wrong and your stock price goes down to $0.25 and you need to raise a few hundred million dollars and the lawyers are like “you are out of shares” and it’s really the dumbest reason to be unable to raise money.
Conversely if you write down that you’ll never issue more than 2 billion shares, in the back of your mind you are probably thinking of some normal share price and multiplying it by 2 billion and thinking “well that is a lot of money.” Like: If your stock gets to $200 and you issue all 2 billion shares you will be a $400 billion company and that will be a huge wild success, and when future-you is running a $400 billion company, you will be so happy and fulfilled that “not enough authorized shares” will not be a thing that you even think about.
Or so you think now, in the garage, but in fact:
On March 28, 2022, Tesla, Inc. (the “Company” or “Tesla”) announced its plan to request stockholder approval at the upcoming 2022 Annual Meeting of Stockholders (the “Annual Meeting”) for an increase in the number of authorized shares of common stock through an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Amendment”) in order to enable a stock split of the Company’s common stock in the form of a stock dividend. Tesla’s Board of Directors (“Board”) has approved the management proposal, but the stock dividend will be contingent on final Board approval.
Tesla has about 1.03 billion shares of stock outstanding; it has 2 billion authorized shares. Its stock closed on Friday at $1,010.64, giving it a market capitalization of about $1.04 trillion. That is a high and annoying price for stock, and for various reasons — psychological appeal to small-dollar retail investors, appeal to small-dollar retail options traders, ease of employee compensation, being in the Dow — companies sometimes want lower and less annoying stock prices. Split the stock 10 for 1 and have a $101 stock price, that’s nice. (And Tesla did a 5-for-1 split in 2020.) But Tesla can’t split the stock 10 for 1, or even 2 for 1, because it is out of stock, so it has to ask shareholders for more. They’ll agree, of course; it’s fine. It’s just silly and nice. Tesla wrote down the maximum amount of stock it could ever need, and it needs more because it did too well.
By the way, this is different from the Barclays thing! The problem is not Tesla’s securities registration — that’s very easy — but rather the number of shares authorized in its corporate charter. You have to list your number of authorized shares in your financial statements every quarter, and it is audited, and people will generally be aware of it. You can mess it up — you can plan to sell an amount of stock that is not technically authorized — but someone will catch it before you actually sell the stock. It’s just easier to notice than the shelf registration thing.