How to Change Stocks in a Corporation
Original post by Ryan Menezes of Demand Media
Corporations sometimes change their stocks by issuing a new offering of shares. This stock dilution reduces existing shareholders' voting power with the corporation, but it raises significant new capital. The corporation should change its stock according to the amount of new equity it wants to raise. At a set offering, in terms of the new shares, a company must issue its stock at a higher price to generate a higher level of equity.
Multiply the number of outstanding common shares by the amount of equity that each shareholder contributed. For example, if investors have bought 2,000 shares, contributing $50 with each share, multiply 2,000 by $50, giving $100,000.
Add the value of the corporation's non-tangible equity. For example, if it lists this value as $30,000, this makes a total equity level of $130,000.
Subtract this level of equity from your target equity level. For example, if you want $200,000 in capital, subtract $130,000 from $200,000, giving $70,000.
Divide this equity by the number of shares you plan to issue. For example, if you plan to issue another 2,000 shares, divide $70,000 by 2,000, giving $35. During the corporation's stock change, you must therefore offer the new shares at $35 each.
- The Accounting Review: The Economic Dilution of Employee Stock Options
- University of Iowa: Earnings Per Share
- Practical Financial Management; William Lasher
- Financial and Managerial Accounting; Belverd E. Needles, et al.
About the Author
Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.
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