Issuing shares is a method through which a limited company raises capital by selling ownership stakes to investors.

When a limited company decides to issue shares, it is effectively selling a portion of its ownership to public or private investors. This process is commonly referred to as equity financing. The capital generated from the sale of these shares is utilized to support the company’s operations, fund expansion initiatives, or settle existing debts.

The decision to issue shares is often strategic. Companies may opt for this route when they require substantial capital that they either cannot obtain through borrowing or prefer not to. Reasons for this preference may include high-interest rates, strict borrowing conditions, or a desire to avoid increasing the company’s debt burden.

The share issuance process begins with determining the number of shares to be issued and the corresponding price at which they will be sold. This determination is typically conducted with the assistance of financial advisors who evaluate the company’s financial health, prevailing market conditions, and investor demand. If the company is publicly traded, once the shares are issued, they can be bought and sold on the stock market.

It is important to recognize that issuing shares results in the dilution of ownership for existing shareholders. Consequently, the original owners will hold a smaller percentage of the company, which translates to a reduced claim on the company’s profits. This dilution is a factor that may lead some companies to favor debt financing, where they borrow funds and repay them with interest, rather than issuing shares.

In summary, issuing shares is a prevalent method for limited companies to raise capital. It enables them to secure necessary funds without increasing their debt levels; however, it does dilute the ownership stakes of existing shareholders. This decision is strategic and requires thorough consideration of the company’s financial circumstances, market conditions, and future objectives.