Increase and Reduction of the Share Capital of a Joint-Stock Company

• Introduction:
The share capital of a joint-stock company represents the backbone for financing its operations and expansions. It reflects the company's financial capacity and credibility in the market. Accordingly, the legislator has regulated procedures for increasing and decreasing capital as strategic steps affecting the company's sustainability, financial balance, shareholders' rights, and creditors.
In this article, we explore the methods and impacts of capital increase and decrease in a joint-stock company, along with their positives and negatives.

First: Capital Increase:

• - Issuance of new shares in exchange for cash or in-kind contributions.

• - Issuance of shares to settle existing debts with the approval of creditors.

• - Issuance of shares from reserves (capitalization of reserves) and distributing them to shareholders free of charge.

• - Issuance of shares against debt instruments or financing bonds.

• Conditions and Procedures for Increasing Capital:

• - The increase is issued by a resolution of the Extraordinary General Assembly.

• - The authorized share capital must be fully paid, except in cases of issuing shares against converting debt instruments.

• - A portion of the new shares may be allocated to employees within the company or its subsidiaries, and shareholders do not have preemptive rights regarding these shares.

• Shareholders' Preemptive Rights:
Shareholders are granted priority to subscribe to new shares issued against cash contributions, with official notices sent to them outlining the subscription conditions and period.

• Selling or Waiving the Preemptive Right:

• - The General Assembly has the right to suspend the preemptive subscription for the benefit of other parties if stipulated in the company's bylaws.

• - Shareholders may sell or transfer their subscription rights for a consideration or freely.

• Distribution of New Shares:
The subscription to the new shares is distributed among shareholders based on their preemptive rights proportionally. Excess shares are redistributed according to shareholders' requests, and any remaining are offered to external parties if available.

• Benefits of Increasing Capital:

• - Funding growth and expansion plans without relying on loans.

• - Improving credit ratings and negotiating power with banks and suppliers.

• - Enhancing market and investor confidence in the company.

• - Supporting innovation and investing in long-term assets.

• Drawbacks of Increasing Capital:

• - Dilution of current shareholders' ownership (if they do not subscribe).

• - Increased administrative and accounting burdens.

• - Short-term return weakness due to profits being directed towards financing projects.

• - Failure of the offering if there is insufficient market demand.

Second: Capital Decrease:

• Methods of Decrease:

• - Cancelling a number of shares equivalent to the decrease value.

• - Reducing the nominal value of shares equivalent to the losses.

• - Returning part of the nominal value to shareholders or waiving unpaid amounts.

• - The company buys back its shares and cancels them.

• Procedures and Conditions for Decrease:

• - The decrease decision is issued by the Extraordinary General Assembly after a statement by the Board of Directors explaining the reasons and effects of the decrease, accompanied by the auditor's report.

• - If the decrease is due to excess capital, the following must be observed:

  • - Invite creditors to object within (45) days of announcing the decrease intention.

  • - Pay off debts owed or provide sufficient guarantees.

• - Equal treatment among shareholders of the same type and class must be maintained.

• - If the decrease involves buying back shares, shareholders are invited to submit sale offers, and the percentage is reduced if the number of offers increases.

• Benefits of Capital Decrease:

• - Covering accumulated losses and improving the financial position.

• - Avoiding forced liquidation if losses reach half of the capital.

• - Increasing the efficiency of resource utilization.

• - Restructuring ownership upon exit of some shareholders.

• Drawbacks of Capital Decrease:

• - Negative signal to investors and the market.

• - Possible decline in confidence about the company's future.

• - Weakening of the capital base in the long term.

• - Temporary impact on market stock value.

Third: Impact of Decisions on Shareholders and the Company:

Item	Capital Decrease	Capital Increase
Shareholders' Ownership	May be restructured	May decrease if they do not subscribe
Expansion	Does not support expansion	Enables expansion
Market Value	Often temporarily decreases	May improve or be affected
Solvency Indicators	Improve if losses are reduced	Improve
Market Confidence	Declines if reasons are not understood	Increases if justified

• Conclusion:

Increasing or decreasing the share capital of a joint-stock company is a fundamental decision that impacts not only the financial structure but also market confidence, shareholders, and investors. The legislator has addressed these procedures precisely to ensure transparency, protect rights, and balance company flexibility with stability.

Companies should consult legal and financial advisors before making either decision to ensure proper procedures and careful assessment of effects.