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A small public company I own shares in recently advised the market it has completed a share issue to raise money. The new shares were priced significantly below the current market price and there was no mention of who bought them. There was no offer made to current shareholders.

What are the rules about this? Do current shareholders have any rights to new share issues before shares are sold cheaply to somebody else? Not surprisingly, the share price dropped on the announcement to roughly the price that was paid for the new shares.

In my past experience (with much larger companies that probably face more scrutiny) all current shareholders were given rights to new shares proportional to how many they currently own.

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  • Its some anecdata but at private startups where I worked and I received options or share participation, my full documents stated how many shares has been created. The management was free to grant or sell from what they retain from the full block of 1 million shares. In your case, did they create a new issue, or did they sell shares from the original issue?
    – user662852
    Jul 30, 2015 at 13:11
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    It varies from country-to-country, but typically the company constitution/ articles of association/articles of incorporation/bylaws state how much raising is possible. Since you've tagged Australia, check the constitution plus any minutes of previous general meetings/extraordinary general meetings to check if the shareholders have ratified such raising. Most listed companies have a "10%" raising limit that can be lifted with shareholder approval. Note that these rules are put in place by the Australian Stock Exchange. asx.com.au/listings/capital-raising.htm
    – Richard at NorgateData
    Jul 30, 2015 at 23:53
  • So it sounds like when a company's incorporated, they usually never actually sell of of its legally incorporated shares. What happens to these shares?
    – Unconventional Wisdom
    Dec 30, 2018 at 0:15
  • @NovelVentures When a company's incorporated, I believe all of the shares go to the person(s) who incorporated the company, who are now the owners. If they want to sell some of their ownership, they can do so.
    – user253751
    Mar 18, 2020 at 15:15

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Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares.

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    What is the difference between "issuing" and "creating" new shares?
    – Unconventional Wisdom
    Dec 30, 2018 at 0:14
  • Could have been phrased better... Total stock always (theoretically) adds up to 100% of the ownership of the company, though the company can own some of its own shares. The company can give shares of itself THAT IT OWNS to anyone for any price, just as anyone who owns shares can. It can't create more shares, since that would dilute the value of existing shares -- except by doing a Stock Split, where everyone winds up owning the same amount of the company they did before the split but it's divided into smaller pieces.
    – keshlam
    Feb 1, 2022 at 23:21

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