What is a share issue and why is it carried out?

Posted by:
Stephen Øyhovden
on
December 15, 2021

If a stock company needs more money, they can choose to sell more shares. The company then issues new shares which are sold to investors and in this way the company receives fresh equity. We call this form of financing to carry out a share issue.

A simpler description for the share issue is an increase in the company's equity, which in turn leads to an increase in the company's share capital. In order for a company to have the opportunity to grow, regardless of whether the goal is an acquisition or a merger, it will be dependent on access to financing. The most common form of financing is a share issue where new shares are put up for sale at a predetermined price (issue price).

Various reasons why companies carry out a share issue
There are several reasons why a company carries out a share issue to strengthen its equity. Among others:

  • The company wants to grow and expand through investments and acquisitions
  • Better financial stability
  • Strengthen equity to cover losses and debts, if things go badly for the company.

Those who participate in the issue through the purchase of shares will in return receive an ownership share which in turn entitles them to dividends from the company.

What types of issues are there?
In Norway, we mainly distinguish between rights issues and private placements, but there are many more types. According to the main rule of law, rights issues shall be used unless the general meeting provides a majority as for an amendment to the articles of association to deviate from the shareholders' rights of priority.

The law has been introduced to protect shareholders against the dilution effect that arises from private placements.

Preferential issue
According to the Norwegian Companies Act §10-4, shareholders have a preferential right to the new shares by increasing the share capital by subscribing for shares against a deposit in cash.

The preferential right cannot be set aside in the articles of association, but if the company has several share classes, the articles of association may regulate whether the shareholders shall only have a preferential right to shares within the share class in which they already have shares.

Public vs. private placement
Public offerings allow anyone to buy the new shares. So participate in the new drawing. This applies, for example, to a stock exchange listing or to a major government sale from current shareholders.

A private placement, on the other hand, means that only a specific selection of investors will be offered to buy the new shares. This form of issue deviates from the principle of the rights issue, and one is therefore dependent on the board adopting and approving this on a sustainable basis. The advantage of a private placement is that this can be completed much faster than a private placement.

Repair issue
If there is doubt about the "factual basis" for the board that the investment in the new shares during the issue was only available to a specific group, a repair issue can be carried out for the remaining shareholders at the same price.

Crisis issue
As of today, this form of share issue is only an expression of a share issue that is carried out to save the company from an economic crisis. Basically, this will be a private placement.

Employee issue
Some companies carry out share issues that are only aimed at employees. This can be in the form of a share program where employees can buy shares, for example, every year at a discounted price, but with a fixed term for the shares.


Feel free to contact us if you have any questions about the issue and how this is done.

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