Raising Funds: What happens when you issue new shares by adding authorized capital?
Suppose, I have a company
Authorized capital - 100,000 Indian Rupees.
Divided into 100 shares - 1000 Indian Rupees each.
2 Directors Totally.
Director A holds 75 Shares and Director B holds 25 shares.
Now, I want to raise funds for the company.
What is the best way to do it ? Should I issue new shares or give percentage of company for a certain amount.
If I issue shares, what price will I issue share, is it a fixed price which is my initial per share amount or I can choose what price to sell each share.
Currently I have 75 shares, and when I issue new shares, suppose 1000 shares, will that person become owner of the company because he has more shares than me or will I remain the owner of the company.
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Should I issue new shares or give percentage of company for a certain amount.
This depends on what you would like to do. If funds are need to be invested into the company, new shares are issued. The funds thus raised will be held by company and used for growth. If you sell/give your shares, the money belongs to you and not the company.
what price will I issue share
This has got nothing to do with the initial capital/price. It would depend on the valuation of the company. Create say additional shares 100 owned by company. Say you need additional funding of 100,000. Lets say the valuation agreed is 500,000 and the number of shares is 100+100. i.e. 2500 per share. You need 100,000/2500; i.e. sell 40 shares. If the valuation is only 50,000. Then you can't raise more than 25,000.
Arriving at the right valuation for unlisted company is an art and prospective investor would look at quite a few parameters to determine/agree the value.
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