Example of artical day


Shareholder’s Preferential Rights to New Shares

Author: Dr Adel Al Maqdadi

A general joint stock company may start operation with a capital that is just enough to run its business. But after a period, the company may find that it needs additional funds either to expand its business, or because it has insufficient capital to cover its needs. To secure such additional funds the company may seek loans from banks or from the public by offering loan bonds. However, borrowing is an expensive solution in view of the interest the company has to pay. Instead, the company may issue new shares and give the present shareholders the preference to purchase themi. In this article I’ll explain the justifications of giving shareholders the preference to the new shares, the procedures necessary for the public to purchase new shares, and how these shares are distributed to the present shareholders.