Ways to increase the capital of the joint stock company

 A joint stock company may need to increase its capital, either to refinance its debts or to promote growth and expansion of its activity, and since the publicly traded companies have already issued shares at the initial public offering, the extraordinary general assembly can decide to increase the company’s capital in one of these ways.

 First :

Issuance of new shares in exchange for cash or in-kind shares. The method used is for the company to issue new shares and offer them for subscription, and the subscribers pay their value and this value is added to the capital.
But how are the shareholders affected in the company?
Increasing the capital by issuing new shares may entail expanding the shareholder base if new shares are bought by new shareholders and thus their participation in rights such as the reserve funds formed by the company, which are the right of the old shareholders. This may also result in a decrease in the old shareholders’ share of profits, for example  Company "A" raised $1 million by offering 100 thousand for subscription, and achieved a net income in the first year of its activity of 100 thousand dollars, and therefore the earnings per share was one dollar, and in the following year the company issued 50 thousand new shares, and achieved a net income of 125 thousand dollars,  In this case, the earnings per share will be equal to 125 thousand dollars divided by 150 thousand shares, and the sum is 0.83 cents per share. Thus, the earnings per share decreased by about 17% during the second year, and the issuance of more shares means a decrease in the ownership percentage of the old shareholders after the increase in the shareholder base  That is, each existing share represents a smaller percentage of the ownership, which makes the share less valuable and usually the share price decreases after the capital increase.

 secondly :

The company’s share capital can be increased by converting the company’s debts into shares, simply this method is done by converting the company’s creditors into partners by giving them shares for each creditor in proportion to his debts. The company’s capital can also be increased by issuing new shares by the amount of the reserve decided by the General Assembly  These shares are issued in the same form and conditions as the traded shares, and those shares are distributed to shareholders free of charge in proportion to the original shares owned by each of them.

 Third :

Increasing the company’s capital Converting debt instruments or financing instruments into shares The company may issue sukuk convertible into shares provided that this is stipulated in the prospectus. The owner of the sukuk, upon its expiry date, has the choice between accepting the conversion of the sukuk into shares and becoming a partner in the company or receiving the value of the instrument. 

Despite the many ways to increase the company's capital, in practice, the method of issuing shares in exchange for cash shares is the only one that entails adding new money to the company.  and enhancing long-term shareholders' equity.

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