When you look at a live stock chart moving up and down in price, you are really witnessing rapidly changing ownership of shares of that stock at agreed upon prices between buyers and sellers. Think of when you go to a farmer’s market or bazaar where the buyer of a widget may negotiate with the widget’s seller on a price. The buyer’s offer is the bid price, and the seller’s offer is the ask price. When the bid and the ask price match, you get an executed transaction (I touched on this WAY back in Lesson 47 regarding high frequency trading). This “dance” is exactly what you see happening constantly throughout the trading hours with any publicly traded stock. Privately held or restricted shares of a business may also be transacted with other insiders or private investors at an agreed upon price, pending any restrictive covenants to do so of course. In either instance, shares of ownership of a company, or shares outstanding, are swapping hands.
Shares outstanding represent the total number of a company’s shares that are currently held by all shareholders, including individuals, institutional investors, and insiders but excluding shares repurchased by the company itself. For public companies, shares outstanding are commonly reported on financial statements and impact metrics such as earnings per share (EPS) and market capitalization. Private companies also have outstanding shares, but these are typically held by founders, employees, and early investors rather than public shareholders.
The total outstanding shares of a business are comprised of shares publicly owned (public float, or float) and privately owned (restricted shares). Let’s dive into the details of each.
Public float, also called free float, refers to the portion of shares that are freely available for trading by the general public on stock exchanges. These shares exclude those held by insiders (officers, directors, and large shareholders) or shares subject to sale restrictions, meaning public float is always less than or equal to shares outstanding.
Who can invest: Anyone with access to the public market can buy or sell shares from the float, making them accessible to retail and institutional investors alike.
Why companies issue: A larger float typically improves liquidity, making the stock easier to trade and less volatile, which can attract more investors and provide better price stability. It also helps a company meet minimum public ownership requirements for exchange listings.
Key implications: The size of the float directly impacts stock liquidity. Stocks with a low float can be more volatile, as fewer shares are available to absorb buying or selling pressure.
Restricted shares are shares held by company insiders, executives, employees, and major shareholders that cannot be traded freely, usually due to regulatory restrictions or company policies. These are often issued as part of compensation packages or for retention and are subject to lock-up periods or vesting schedules.
Who can invest: Only select individuals — such as company officers, employees, or major early investors — can hold restricted shares, and they cannot sell those shares on the open market until restrictions are lifted.
Why companies issue: Restricted shares are tools for aligning the interests of employees and insiders with the long-term performance of the company. They help incentivize retention and performance, but also prevent immediate selling after key events such as an IPO.
Key implications: When restrictions expire (e.g., after a lock-up period), those shares can flood the market, potentially impacting the stock price and liquidity.
| Feature | Public Float | Restricted Shares |
|---|---|---|
| Tradability | Freely traded on public markets | Subject to restrictions, not tradable until conditions met |
| Holders | General public, institutional funds | Company insiders, employees, early investors |
| Liquidity Impact | Increases liquidity | No direct public liquidity until released |
| Reason for Issuance | Promote trading & meet exchange requirements | Motivate, retain and align insiders |
So why does the distinction between public float and restricted shares matter? While having more or less public float compared to restricted shares may not necessarily mean anything, there are a few things to keep in mind when analysing a stock’s ownership. If the public float is a small portion of the total shares outstanding, this means that a high percentage of the company is employee or insider owned. In addition, because there are a smaller fraction of company shares being publicly traded at any given time, its stock price could experience higher volatility than if a larger public float was available. Conversely, if most company’s outstanding shares are publicly floated shares, this means that there is less employee or insider ownership in the company.
Public float gives a true sense of a company’s tradable stock and its market dynamics, while restricted shares reflect insider ownership and potential future share supply. Companies carefully balance both to manage control, incentivize performance, and optimize market perception. As retail investors, unless your employee issues you company stock to own, or you’re an early venture capitalist investor, we pretty much have access only to the publicly floated shares that are available on the stock market. But don’t worry, there are plenty of publicly traded fantastic businesses that you can buy shares of with just a click of a button – now that is outstanding.