In the life of organizations and enterprises, there is a daily mass of operations that are not always clear and transparent without appropriate education. There are operations that are carried out quite rarely under a certain set of circumstances. Each of them has a specific goal. One of these is the additional issue of shares by a joint-stock company. This article discusses the definition of an operation, its meaning, goals and methods of implementation.
What is an additional issue of shares
The issue of shares, which is also an issue, can only be carried out in a joint-stock company. An additional issue of shares may pursue various goals, but it is most often carried out to attract money into the authorized capital. For many companies, stocks are the only way to generate seed capital. Using these tools, the company develops, expands, innovates in the work process, and so on.
In many ways, the process of additional release is similar to the primary, but there are also some nuances. Like all processes taking place in organizations, the issue must be properly formalized, as well as registered with state control bodies.
Why carry out an additional issue
An additional issue of shares may pursue one of the following objectives:
- increase of authorized capital, attraction of third-party funds for development or solving problems;
- increase in the number of shareholders;
- transformation of the organization, the introduction of reforms in politics.
Depending on the purpose, legal form, number of participants, the joint-stock company may choose various ways of additional issue of shares. Issues vary by serial number and type of shares issued: convertible, preferred, ordinary and so on. Each type of securities has its own provisions in the law. For example, preferred shares cannot constitute more than 25% of the authorized capital.
Often the additional issue is made in such structures as banks, insurance companies and other financial organizations, the activities of which are strictly regulated by law. The state regularly raises the lower bar for them for the size of their authorized capital, even if there is no economic justification or crisis need for this. In this case, the issue of shares is carried out solely to raise the existing level of equity to the necessary level.
Additional Issue Terms
Before deciding on an additional issue of shares, you need to make sure that three conditions are met:
- All previous share issues are fully completed.. This means that all issued securities are fully paid, the final emission reports are registered as required by the procedure, the results are reviewed at the general meeting of shareholders of the company and approved, and changes are made to the charter.
- The number of issued shares must not exceed that fixed in the charter of the organization. If this amount is not enough to achieve the goals, it is necessary to approve at the general meeting of shareholders the amendments to the charter.
- The issue of additional shares by a joint-stock company is possible only if the organization fully complies with the legislation on disclosure of information.
Placement methods and emission stages
The methods of placement of shares of the additional issue are determined by the state. The joint-stock company has three possible ways of placement:
- to distribute shares among existing members of the company (the number of participants does not change, but their shares in the capital may be redistributed);
- placement by open or closed subscription (third-party investors are involved, the circle of participants is changing, the ratio of shares is changing);
- conversion of other securities of the organization into shares (the procedure should be clearly stated in the charter).
The emission procedure includes a series of sequential steps, none of which should be skipped. Additional shares are issued according to the following algorithm:
- shareholders decide on the need for an additional issue;
- the decision is approved at a general meeting or by the board of directors;
- additional issue of shares is registered;
- shares are placed among potential holders of securities;
- a release report is prepared, then registered by the state.
In the following paragraphs we will analyze all these stages in more detail.
Adoption and approval of a decision on release
At the decision-making stage, an analysis of the state of the company, as well as future development, is conducted. Typically, these actions are the responsibility of the board of directors. At a general meeting, the issue of emissions is raised if certain restrictions set by the state are exceeded (amount, type of community, placement conditions).
The second stage - approval of the decision - is also subject to approval by the board of directors. Only in particularly difficult situations is it submitted for consideration by the general meeting of shareholders. The stage includes more detailed case studies and analytics. The idea of release is overgrown with specifics: indicators, conditions, and so on.
Registration of an additional issue
After the decision on the additional issue of shares has been made and approved, the bank must register it. Of course, not any bank, but the Bank of Russia Service, under whose supervision there are financial markets.
An application to the Bank of Russia Service is submitted no later than 30 days after the approval of the decision on the issue. In addition to the document itself, it is necessary to provide a number of papers reflecting information on the legal and economic status of the company, an issue prospectus that transparently reflects the calculations, analytics and other data necessary for future investors to decide on the feasibility of investing. Other documents may be required, depending on the type of joint stock company and securities issued.
Placement of an additional issue of shares
The easiest way to float is to distribute securities among existing shareholders. The only condition is that the rights of none of them should be violated.
Private Subscription - sending proposals for the purchase of shares to a certain circle of persons having priority in the purchase of securities of this organization.
Open Subscription - Any person can purchase shares. The advantage is still possessed by existing shareholders, but tendering is public.
The hardest way - conversion of securities. Features of this method should be spelled out in the charter of a particular company.
Payment for securities can be made both in cash with the execution of the contract of sale, and in others, implying the execution of special documents for the transfer of ownership.
The timing of the placement depends on its method, as well as on the type of shares. If securities are placed among their shareholders, the terms are usually not specified. In the case of an open or closed subscription, tenders go from 1 month to a year.
State registration of an additional issue of shares
The completion of the issue is also recorded by the Bank of Russia Service. A report on the issue of securities is submitted no later than 30 days after the placement of the last share. The service checks the report and all related documents within 14 days. After that, the joint-stock company shall receive a verdict on the results of entry in the register.
Registration of additional issues of shares is not just a formality. Civil servants will thoroughly study all the necessary documents for compliance with legislative norms and regulations. If during the inspection a violation of the existing rules is revealed, sanctions may be imposed on the organization. Depending on the severity of the violations, an additional issue of shares may even be invalidated.
