Paid-in Capital Increase

1. Definition

A Paid-in Capital Increase (or Seasoned Equity Offering) is a corporate action where a company issues new shares of stock to investors in exchange for cash. This process increases the company's capital stock and total equity, serving as a primary method for raising funds without incurring debt.

2. Types of Allocation

The method is categorized based on who is eligible to purchase the new shares.

2.1. Rights Issue (Shareholder Allocation)

Existing shareholders are given the right to purchase new shares in proportion to their current holdings. This allows them to maintain their percentage of ownership.

2.2. Public Offering

New shares are offered to the general public. This is often used when the company aims to raise a significant amount of capital and diversify its shareholder base.

2.3. Private Placement (Third-party Allocation)

New shares are sold directly to specific investors, such as institutional investors or strategic partners, rather than to the public or existing shareholders. This is often used for strategic alliances or rapid capital injection.

3. Economic Impact

3.1. Positive Aspects

• The company secures capital without interest obligations, which can improve its debt-to-equity ratio and fund new investments or operations.

3.2. Negative Aspects (Dilution)

• Since the total number of outstanding shares increases, existing shareholders may experience dilution of their ownership percentage and Earnings Per Share (EPS). Because new shares are typically issued at a discount to the market price, it can exert downward pressure on the stock price in the short term.