share issue – when a LTD company or corporation decides to issue more shares in the company in exchange for a payment from the sale

Note: Share issues are also known as a type of equity finance.

To remember what share issue means use the following mnemonic:

Sharing control of the company is the main issue (share issue) when issuing shares, but you would get loads of money to invest.

If a company needs to raise a lot of money for a major new project or expansion, one method is to issue more shares.

Advantages

Payment from the sale of shares can be kept by the company without having to pay it back. If you borrowed money from the bank you would have to pay the money back and with interest.

Disadvantages

When a company issues more shares, it means that each existing shareholder owns a smaller percentage of the company. New shareholders will want to be paid a yearly dividend but that depends on profits. An investor or new shareholder doesn’t expect money to come back to them in the short term. They are waiting to see if the company can grow big enough for it to be worth serious money later. The shareholders become owners and have a say in how the company is run. If a person gets more than 51% you will lose control as they become the majority shareholder. A share issue can cost a lot of money, especially if it is a large offering to sell on the stock exchange called an IPO or Initial Public Offering. If a company has shares on the stock exchange there are ongoing costs to the stock exchange and there are additional rules such as issuing more frequent profit and loss statements through the year.

When a company issues new shares, it sets a price for them. This price is usually determined by the company’s management team. If the shares are to be issues on the stock exchange, the price can be considered with advice from an investment bank that would help with the share distribution to the new investors.