SHARE ISSUE

What is a share issue?

With a share issue a company issues its own shares either to the current shareholders or to  new shareholders. The shares in question can be either company’s possessed own shares or new shares. According to the Companies Act, the shareholders of the company have a right to subscribe the shares pro rata their shareholdings. If the shares are given derogating from the shareholders’ subscription right, the share issue is called a directed share issue. A directed share issue is conditional to weighty financial reasons.

Why should a company issue shares?

Usually the shares issue is used for financing purposes when shares are issued to investors in exchange of subscription price improving the financial status of the company. Share issue can also be used for engaging employees to the company.  

Shares can also be issued without a subscription price. Share issue without a subscription price can be used to prevent the diluting of the existing shareholders ownings when new shares are issued.

Can the subscription price be paid with other assets than cash?

In most of the cases the subscription price is paid with cash, yet the subscription price can be paid also as contribution in kind. If the subscription price is paid with shares of another company, this is called a share exchange.

What is the difference between share issue and option right?

Option right means a right to obtain company’s shares in a share issue. Option right allows the subscriber a longer subscription time compared to share issue. The option right may be valid for years oppose to share issue where the shares are subscribed relatively soon after the shareholders’ resolution on share issue.

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