If you were a 'Dragon' or an investor in let's say a football club - you buy 40% of the ordinary shares, where is the protection from dilution?
Within the articles of association?
I can see how you'd more likely than not have a solicitor involved if you were buying [for the sake of example] 40% of the shares in my company, but if you're buying off a stock exchange I don't see where the protection lays, less this is covered in stock market rules or such.
Thanks
-- Edited by abacus12345 on Monday 13th of March 2017 02:55:24 PM
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
An interesting question, I would imagine it would be in the articles.
Regarding plc's, wouldn't it require a new shares issue, which would be well publicised, and as far as I'm aware, needs the approval of a majority of shareholders.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hey, yes I'm inclined to follow your logic John, it was seeing the price of one share in a premier league club, trading at > £17000 which got me thinking about how an investor is afforded protection. Thanks
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
buying any kind of shares carries inherent risk, a fact that is plastered over everything when you purchase shares in a Plc. No less fraught if or a holding in a private limited co.
The words shareholder and protection do not sit comfortably together.
minority shareholder in any business = not much clout, unless of course several minority shareholders can gang up together against the majority and out vote.
If you hold shares with voting rights then you get a vote, same in a Plc. PLC has to communicate with you to get that vote for any share 'issue'. Of course the little person holding one share doesn't hold out much hope against the institutional investors holding 100k shares, but that's the nature of the beast. Although that institutional investor can also be caught out if their holding is not a huge percentage eg in a reverse takeover situation.
Private investor in private company - goes back to the not being a moron situation. Due diligence is required, which of course involves a solicitor and frankly an accountant and also their bankers for an existing entity. The incoming will require certain CONTRACTUAl obligations from the existing/remaining majority shareholder. Changes to articles is one, but also investor agreements and shareholder agreements. Try then to dilute their shareholding and they will just have the shirt off your back, your car, wife and pension pot.
Such agreements cover appointment and sacking of directors.
Massive subject, sorry no time!!
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
There is a limited share capital, partially will be unissued.
If the company wishes to issue this share capital to raise funds, its normally done via a rights issue, which gives the existing shareholders the first right to purchase the additional shares, normally at a discounted price to market value. This is to attempt to avoid dilution of your shareholding. You can sell this right on and recoup an amount of money too if you do not want to invest via the rights issue. This is what I used to do for a job before giving up the rat race.
It is an interesting subject for sure, especially when it comes to hostile takeovers and such.
I was aware of being able to issue further shares from premium and retained, it was the issue of rights issues really, if you can't afford to buy any on offer you 'could' suffer a painful dilution. But, as quoted from either Joanne or Shaun at some point - "That's the nature of the beast."
Thanks
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
