What is the effect of issuing new ordinary shares?

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Multiple Choice

What is the effect of issuing new ordinary shares?

When new ordinary shares are issued, the ordinary share capital increases by the nominal value of those new shares. This adds to the company’s equity base and changes the capital structure by expanding the number of shares outstanding. In most cases, existing shareholders have pre-emption rights, giving them the opportunity to subscribe for the new shares in proportion to their current holdings to maintain their percentage ownership. If those rights are exercised, there’s no dilution; if they aren’t, or if the rights are disapplied, the ownership percentages of existing shareholders can be diluted.

When new ordinary shares are issued, the ordinary share capital increases by the nominal value of those new shares. This adds to the company’s equity base and changes the capital structure by expanding the number of shares outstanding. In most cases, existing shareholders have pre-emption rights, giving them the opportunity to subscribe for the new shares in proportion to their current holdings to maintain their percentage ownership. If those rights are exercised, there’s no dilution; if they aren’t, or if the rights are disapplied, the ownership percentages of existing shareholders can be diluted.

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