A share issue is simply explained by a capital increase by issuing new shares that are sold to investors so that the company receives fresh equity.
The company must consider this
It must be taken into account whether the company's shareholders have sufficient capital to provide the company with sufficient investment. If a very large issue is to be carried out, a private placement will not always hold, and a rights issue may be necessary. This will of course vary.
Preferential issues will tend to extend over a long period of time, which opens up the risk that the share price may fall below the subscription price. Thus, the subscription price must often be set lower than the share price in the market to take into account that the share price may fall below the subscription price.
In the list below, we have set up an overview of the advantages and disadvantages of private placement vs. rights issue:
Benefits Private placement:
Benefits Preferential issues:
Disadvantages Private placement:
Disadvantages Preferential issue:
There is a lot to consider and the type of share issue that should be chosen depends on the company's financial situation, articles of association, general meeting and not least the time the company has to set aside to carry out the share issue.
We recommend that the assessment between a private placement and a rights issue be assessed with financial and legal advisers.
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