A new share is an additional unit of company equity created and issued to an investor. In a financing round, the company creates new shares and sells them for cash. section 20.2 section 3.1
The uncomfortable part for existing owners is dilution. Because the total number of shares increases, each previously issued share represents a smaller percentage of the company. The shares do not shrink; their ownership fraction does. section 20.2 section 3.1
An emergency financing round
A struggling company raised a small emergency round designed to cover losses while limiting dilution. A board resolution, approved with majority shareholder concurrence, caused the new shares to exist; investors then bought them and supplied cash. Existing shares consequently represented a smaller percentage of the company. section 3.1
Keep the practical sequence in mind:
- The company creates additional shares. section 20.2
- New investors purchase those shares and provide company cash. section 3.1
- Existing owners retain their shares but hold a smaller percentage. section 20.2
