Sell additional securities: Overview, definition, and example
What does sell additional securities mean?
"Sell additional securities" refers to the act of issuing or selling more shares, bonds, or other types of securities beyond the initial offering or the amount currently outstanding. This can happen when a company needs to raise more capital or expand its operations. The sale of additional securities can be part of a public offering, private placement, or secondary offering.
For example, if a company initially offers 1 million shares of stock to the public and later decides to sell an additional 500,000 shares to raise more funds, it is said to be "selling additional securities."
Why is selling additional securities important?
Selling additional securities is important because it provides companies with a way to raise capital for various purposes, such as financing new projects, paying off debt, or expanding operations. It also allows companies to take advantage of favorable market conditions, such as when their stock price is high. However, selling additional securities can dilute existing shareholders' ownership and potentially affect stock prices, which is a key consideration for investors.
Understanding selling additional securities through an example
Imagine a tech startup that has raised capital through the sale of 1 million shares of stock to fund its initial operations. As the company grows and seeks to develop new products, it needs more money. The company decides to sell an additional 500,000 shares to raise more capital. This action helps the company obtain the necessary funds but also dilutes the value of the existing shares, as there are now more shares outstanding in the market.
In another example, a corporation issues bonds to raise capital for a large infrastructure project. After successfully selling an initial round of bonds, the company decides to sell additional bonds to raise more funds for the project’s completion, increasing the total debt it owes but ensuring it has enough capital to finish the work.
An example of a sell additional securities clause
Here’s how a clause related to selling additional securities might appear in a contract:
“The Company shall not sell additional securities or issue new shares without prior written consent from the investors, except in the case of an offering under the terms of this Agreement or as otherwise approved by the Board of Directors.”
Conclusion
Selling additional securities is a common method for companies to raise capital, but it must be carefully managed to avoid unintended consequences such as shareholder dilution. By issuing additional shares, bonds, or other securities, businesses can secure the funding they need to grow or maintain operations. However, the impact on existing investors and the company’s financial structure must always be considered.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.