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Additional issue of shares

Category — General Notions

An additional issue of shares is a process when a company issues additional shares into circulation to already existing shares, as a result of which the shares of shareholders are diluted.

The purpose of the additional issue is to receive “free” money (money that does not need to be returned) so that it can be directed to the implementation of new projects, expansion of current activities, modernization of production, or other purposes.

An alternative to an additional issue may be a loan, but not always a financial institution can approve it to the issuer or the proposed conditions are unfavorable for the issuer. Therefore, an additional issue makes it possible to raise funds on conditions convenient for the issuer (and without interest).
Another reason for the additional issue is the consolidation of the authorized capital in the hands of the majority shareholders, since at the legislative level they have the right of first priority to acquire additional shares.

With an additional issuance, there is an increase in the total number of shares, which leads to a decrease in earnings per share and the payment of a dividend per share. These changes may negatively affect interest in the company in terms of investment and reduce quotes, which in turn will lead to a decrease in capitalization.
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