Client has agreed to give up 2.5% of the business in exchange for external investment. Currently 1000 shares (£1) issued but cant see how many new shares will need to be issued to give the investor exactly 2.5%. 25 will leave them slightly short, 26 gives them slightly too much.
Note there are several shareholders & as per shareholders agreement, all will be diluted equally.
Related resources
Replies (24)
Please login or register to join the discussion.
Does it really matter if it isn’t exactly 2.5%?
If it does, you will need to sub-divide the shares.
Edit as missed the decimal-
Do a bonus issue to existing shareholders such that is allows a total number of shares to them that are 97.5% of an integer.
Thanks for your reply, but its actually 2.5% the new shareholder entitled to & not 25%. Using your numbers, issuing 770 new shares gets close (2.502%) but still not bang on.
Issue 521 shares among the existing shareholders and 39 to the new shareholder if possible.
Total shares 1,560
Existing 1,560 x 97.5% = 1,521
New 1,560 x 2.5% = 39
Cheers. That might be best I can achieve. Only issue is it will mean some existing shareholders have their holdings rounded down slightly (and others up). Its not material in my eyes, but guessing some will disagree in principle.
Cheers. That might be best I can achieve. Only issue is it will mean some existing shareholders have their holdings rounded down slightly (and others up). Its not material in my eyes, but guessing some will disagree in principle.
Ask them to come up with something better.
That should solve it.
I guess another way would be to simply issue 26 new shares to incoming investor. So 1026 in total which would give them 2.534%. Either way, looks like rounding will create winners & losers but this might be simplest process.
If you give us a list of the number of shares each individual existing shareholder currently has then a plan, possibly involving a bonus issue and then consolidation, might get the existing number of shares sorted out to allow the new issue to be an integer and each existing shareholder to hold a whole number of shares.
Thanks a lot for your help. Hoping table below comes out vaguely legible.
SHAREHOLDER QTY %
A 335 33.5%
B 150 15.0%
C 80 8.0%
D 360 36.0%
E 50 5.0%
F 25 2.5%
1000 100%
More questions .
Does the 5% shareholder suffer a dilution?
Your % list implies 5% after the share issue, I feel that list is incorrect.
Any BADR risk?
Indeed the 2.5% holder may be miffed...not a 5% holding?
A new shareholder agreement?
Independent advice sought and given.?
The potential gains or tax savings may be modest, but the potential for a scuffle remains.
Out of interest have the foregoing issues been addressed?
No sorry, the numbers below are pre new share issue, so yes the 5% would be diluted (to ~4.9%). Have i considered all the others issues? Broadly yes, although i would see BADR as a personal issue for the shareholder in question. Shareholders agreement etc are all in hand, i've just tied myself in knots with the share allocations.
Issue 38 bonus shares for each one held, so 38,000 new shares and 39,000 in total. (you need reserves)
Issue 1000 shares to the 2.5% investor, so 40,000 shares then in issue
If you want to consolidate then on a 1 for 5 basis you reduce all this to 8,000 shares, each shareholder still having a whole number of shares.
You might want to check my arithmetic.
I agree with your arithmetic, equal dilution across all shareholders, whole numbers of shares, and exactly 2.5% to the incoming shareholder, every box ticked.
Thanks, that all seem to add up & a fairly tidy solution.
Only issue is the company has no reserves (still in start-up phase). Any ideas on how to get round this?
Exactly - I don't know why it's taken so many posts to agree with my straightforward solution. Sub-divide into 1p shares, issue 2,564. If 2.4999% isn't close enough they need to have a word with themselves.
I like it. Or sub division into 10p shares might get me close enough (2.496%).
Any issue over lack of reserves?
Subdivide into 10p or 1p or whatever you want and then issue 7,000 to get 8,000.
I already provided the revised split below.
You don’t need to get close enough, why not get it to work out exactly.
Reserves don't come into it - all you are doing is redesignating the nominal value of share capital.
Trying again with the split. Issue 7,000 shares.
A 2,613
B 1,170
C 624
D 2,808
E 390
F 195
New shareholder 200
