That’s not the way it works. So of course it sounds illegal because you’ve made up an illegal scenario.

When the board triggers this clause, they may sell shares to existing shareholders at a discount. These are new shares. Companies have every right to sell shares outside of the exchange they’re listed on… and they do that all the time, through employee grants or options, for example.

When raising funds they generally sell new shares on the exchange, because that’s the highest price they can obtain for the share.. but they don’t have to do that.

And yes, in case you didn’t know, companies can sell as many shares as they want.