How is share dilution legal? >"Hey do you want to buy 10 out of 100 shares of my business?"

How is share dilution legal?
>"Hey do you want to buy 10 out of 100 shares of my business?"
>"Sure, sounds like a good investment"
>"Hey so I pulled another 900 shares out of thin air and now you only own 1% because total ownership is now technically 1000%"

Fricking insane.

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  1. 1 month ago
    Anonymous

    this is not what happens

    • 1 month ago
      Share dilution

      Explain how you can have more than 100% of a company. When you buy 10% you should have 10%.

      • 1 month ago
        Anonymous

        you can't op worded it dumb. it's just more shares added to circulating supply diluting your ownership. normally want happens when more shares are added to a circulating supply is called a split and you retain your ownership of 10% for example in a 1/10 split if you had 10 shares you now have 100 shares.

      • 1 month ago
        Anonymous

        if new shares are approved, they would be in exchange for capital
        example:
        i (party A) have 75 shares of a company, my minority co-owner (party B) has 25 shares
        we estimate the value of our business to be 100k, or 1k per share
        i decide to raise capital, and issue another 50 shares and sell them to party C for 50k
        assuming no valuation changes in the underlying business, the business now has a 150k of valuation+new capital
        party B's stake went from 25/100 shares worth 25k, to 25/150 shares worth 25k
        ownership percentage went down, but valuation stayed the same
        this is why voting rights are important

        • 1 month ago
          Anonymous

          >party B's stake went from 25/100 shares worth 25k, to 25/150 shares worth 25k
          Are you trying being ironic ?

          • 1 month ago
            Anonymous

            ?

            25/100 = 25% ownership
            25% ownership of 100k = 25k

            25/150 = 16.6% ownership
            16.6% ownership of 150k = 25k

          • 1 month ago
            Anonymous

            >company submerged by debts, nobody knows really
            >market value 100k
            >two options: go bankrupt or raise capital
            >decides to raise capital for 50k
            How much you think is the company market value after this happens?

          • 1 month ago
            Anonymous

            obviously the underlying value of that business would be suspect even before raising capital
            if you don't want to be subject to share dilution, do your DD and read what the company is allowed to do with and without a majority of votes

          • 1 month ago
            Anonymous

            to add, investments into private companies are typically int the form of preferred which alre nearly always structured to have veto rights over, among other things, dilutive issuances, M&A/DLE, etc. it's not even a DD issue really, being solved in the TS/pro forma stage

          • 1 month ago
            Anonymous

            but in this scenario, stockholders will approve the issuance because the alternative (liquidation - which is most often what bankruptcy means for the vast majority of businesses) is a near complete loss of investment. presumably the new capital is anticipated to be enough to enable course correction and so a larger payoff in the future, even if your piece of the pie is smaller (if it's not, they'll allow the company to fall into bankruptcy)

          • 1 month ago
            Anonymous

            What do you think happens to your portion of the 100k if the company decides to file bankruptcy instead of raising capital?

        • 1 month ago
          Anonymous

          actual corporate lawyer here. this is essentially correct.

          worth noting that there are also other ways to protect yourself aside from voting/veto rights, such as anti-dilution adjustments and the like

      • 1 month ago
        Anonymous

        you can't op worded it dumb. it's just more shares added to circulating supply diluting your ownership. normally want happens when more shares are added to a circulating supply is called a split and you retain your ownership of 10% for example in a 1/10 split if you had 10 shares you now have 100 shares.

        Issuing new shares is very different than doing a split

  2. 1 month ago
    Anonymous

    > anon realized "stocks" are even worse than shittokens on ethereum.
    based.

  3. 1 month ago
    Anonymous

    Boards need permission to dilute. Markets should have an IQ test.

  4. 1 month ago
    Anonymous

    Yep
    Stocks are a scam

  5. 1 month ago
    Anonymous

    because if company uses the money they get from dilution wisely, then the share price goes up anyway.

  6. 1 month ago
    Anonymous

    As my favorite CEO once said:
    Owning 10 one dollar bills is the same as owning 1 ten dollar bill.

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