The document provides and insight on the different types of share issues and what the reasoning behind them is. For some share issues, this incudes a list of advantages and disadvantages on why they are being conducted or not. The document also gives descriptions and definitions for all types of sh...
Nominal Share Value - An arbitrary value assigned to each share based upon dividing the number of
shares issued by the share capital of a company.
nominal share price = share capital / number of shares issued
Ordinary Shares - known as common stock or equity shares, they give the holders a right to vote on
matters of corporate policy and a share of the profits distributed.
Preference Shares - they give the holders first right to dividends up to an agreed level per share,
usually without voting rights.
Equity raising:
- Rights issue
- Public issue
- Private placings
- Offer for sale
Equity restructuring:
- Bonus issue
- Share split
SHARE SPLITS
A decision to increase the number of shares outstanding and therefore lower the nominal value and
therefore the market value of each share.
- Does not raise capital nor should it increase the value of the firm or wealth of investors but
instead it lowers the share price making it more affordable to a wider range of investors.
Share Consolidation - decision to decrease the number of shares outstanding and therefore increase
the nominal value and therefore the market value of each share.
- no impact directly on the value of the firm or wealth of investors.
It is common for companies to consider a share split as their share price exceeds £100 per share.
BONUS ISSUE
Free shares given to current shareholders, also known as a script dividend, free shares are offered
proportionally to shareholders based upon the number of shares already owned.
- Provides shareholders with more access to equity, but does not increase their wealth.
Reasons for a bonus issue:
● releasing equity from reserves because they don’t have the cash to give shareholders a
dividend
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