“Fully diluted” shares are the total common shares of a company counting not only shares that are currently issued and outstanding but also shares that could be claimed through the conversion of convertible preferred stock or through the exercise of outstanding options and warrants.
The calculation of “fully diluted” shares for a company is generally made so that an individual stock owner can determine their “fully diluted” ownership percentage, which is the number of common shares owned by that owner divided by the total fully diluted shares. This calculation is more meaningful than simply dividing an owner’s current common shares against the company’s issued and outstanding common shares because it captures the total pool of potential common shares.
Depending on the context, fully diluted shares may also include shares reserved under a company’s equity incentive plan that are not yet allocated to option or other equity awards.
Last reviewed: April 28, 2021