As an entrepreneur, do you want to grow, invest and seize opportunities without the bank immediately putting on the brakes? A share issue can then be an alternative way to finance your company.
You strengthen the balance sheet, increase the strength of your business and possibly bring on board a partner who brings more than just money. For an entrepreneur, it is crucial to look not only at the capital itself, but more importantly at the impact on ownership, control and the long-term value of the business.
Added value of equity issuance
A share issue allows businesses to raise capital without increasing debt. This is often attractive to companies that want to strengthen their balance sheet, not hinder growth or avoid solvency problems.
Instead of interest and repayment on a loan, the investor then receives an ownership interest in the business and shares in its future results and value development. No obligation arises from the company to repay the capital contributed, but the shareholder does relinquish part of the company.
For businesses looking to grow or expand, for example through new branches, product development or entering new markets, a share issue may well be an appropriate way to obtain the capital needed. Bank financing can be restrictive in such situations due to, for example, interest obligations, collateral and the risk of high debt.
Additional equity creates more room to make strategic investments. In addition, an equity issue can also be used to attract a strategic partner. Bringing in a new investor or business partner as a shareholder not only brings in money, but also expertise, network and access to new customers or markets.
Impact of share issue
On the other hand, as a business owner, you must also carefully consider the consequences for dilution and control. Issuing new shares reduces your stake in the company. It is important to consider in advance what minimum stake you want to retain in any case, and which decisions absolutely require your consent, such as the sale of the company, major investments or dividend policy.
You lay down these agreements in a shareholder agreement or this can also be done in amended articles of association. The valuation of the company is also crucial, because it determines the price at which new shares are issued. Too low a valuation can lead to unnecessary dilution.
In addition, equity issuance requires clear choices about the structure and conditions, such as the type of shares, the distribution of voting rights and dividends, and any management participation. The optimal structure can be further improved by, for example, cumulative preferred shares (cumprefs), subordinated loans or a convertible loan.
Finally, the process has legal and tax implications. Notarial documents must be amended, the administration must be correct, and tax consequences may arise for both the entrepreneur and other shareholders.
A share issue can therefore be a great way to finance growth, professionalization and strategic steps. You strengthen your company, increase your capabilities and can attract a partner who really adds value.
