Comment by the_svd_doctor | Hacker News Reader

Comment by the_svd_doctor | Hacker News Reader

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Same. If I own 10% of a company, how can the board just decide through some mechanism that I now really own like 8% ?

Actually yes, this is often called "dilution", and it's common in companies that are raising money by selling stock. I'm sure there are complicated rules about when it's allowed and how much is allowed, but I don't know what they are.

They can always do that, by just issuing more shares. In fact, if you buy X shares, the percentage of the company you own could well decline over time. Or increase, in the case of stock buybacks.

Are there guardrails on this? This comment makes it sound like the board can print their own money.

> Are there guardrails on this?

If you've ever wondered why corporations have authorized and issued shares, there you go. Increasing the authorized share count requires a shareholder vote. Issuing shares under that cap does not. When shareholders increase the number of authorized shares, they are delegating that decision making to the Board.

It wasn't always like this. But as finance sped up, particularly towards the end of the 19th century, a railroad company which had to hold a shareholder vote to raise emergency equity because their free banking deposits in Nevada went bust would find itself systematically outmaneuvered by the ones who had pre-approval to plug the hole. As a result, most corporations now authorize the maximum number of shares reasonably possible, in almost all cases only moderated by some states' franchise taxes varying by number of shares.

See also: stock buybacks

Buybacks are more a tax quirk than a control mechanism.

sorry, fair and true. My point was more how a company can create a difference between issued and authorized shares.

There is also question of market demand... There is not telling that those shares actually sell at market price.

So far I've tried to understand the poison pill and there aren't any satisfactory responses, either on HN or elsewhere in the news.

Wikipedia of Shareholder's Rights Plan is skimp in details as well.

Everything I hear ostensibly appears to be "That should be illegal, makes zero sense". So with no good information out there, it seems like no one is an expert at this and making up bullshit.

I'm interested in this assumption that because you do not understand something, no one else must either. Is this a heuristic you apply to all fields of knowledge, or just business law?

Ignoring the snark, this entire thread is full of questions including the top comment.

Yes, but that mechanism - issuing and selling new shares - brings in additional external money to the company so that afterwards you own 8% of a bigger pie.

Where do you think all the shares companies offer employees come from? They just make new shares. There is nothing illegal about this as it does everyone equally.

Maybe you are right, but the instant price of stock will probably fall down after "dilution", so for example if you had $10 000 worth of stock before dilution, and you want to sell it the next day, you probably will get less than $10 000 because now there are more shares available in the market (more supply, but the same demand as yesterday).

No, it is wrong to assume that the instant price of the stock will probably fall down after the dilution. It might fall, but it might as well increase, which often is the case, since the company as a whole literally become more valuable (influx of new cash on the balance sheet for the issued shares) and it just gained significant extra working capital that it can use to expand operations.

In this case you rely on a functional rational market in ideal business operating conditions.

If I issue more stocks for a meme stock at the height of it's popularity it will likely go up in price for reasons completely disconnected from the balance sheets and future revenue.

Conversely, if I recently started the process for bankruptcy and issue more stocks to cover the liabilities on my balance sheet, the stock could very well decrease disproportionately to the number of issued stocks.

Stocks at the end of the day are based on the market's perception of the stock's worth. The market is not a single rational actor, rather numerous small irrational actors and a few very large highly rational actors. Obviously there is a spectrum in between, but the ratio of buyers on a given end of the spectrum will influence the behavior of a stock to either align or diverge from the fundamentals of the company, and not always in the way you would intuitively expect.

Companies do this all the time with share-based compensation don’t they?

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