I’m no financial professional, but I don’t think that’s the way it works. I don’t believe that these unissued shares have any voting rights, so they don’t affect who has majority control.
What kind of shares are issued and what voting power they have vary from case to case so there is no possible way to generalize about them.
True, but echo7tango referred to the company selling stock. My understanding is that the only way to do so is to sell unissued but previously authorized shares, sell previously sold treasury shares that have been repurchased by the company or to issue new shares in the company. Again, not a financial professional, but I can’t imagine that any such shares have voting rights. How could they? Who would vote them?
I must be missing something because this happens all the time. There are many ways that new stock can come on the market. Yes, issuing new stock does dilute the percentage of holding previous buyers have in the company, but that’s an everyday procedure. They can always buy some of the new stock if they want to keep holdings equal. Whether the shares are preferred or non-preferred or voting or non-voting or have unequal voting strengths or any of the other possible maneuvers (all of which happen regularly) makes no difference.
And I don’t understand why “unissued but previously authorized shares” would have voting rights any different from the previously issued shares.
I was replying to FuzzyOgre, who said,
If I understand him correctly, he’s suggesting that when a company sells new shares to the public, it might lose control of the company. That seems incorrect to me.
A company never owns itself. Its stockholders own it. In most large companies nobody holds a majority of all stock or even of the voting stock. The major stockholders put directors on the Board to ensure that decisions go their way and use those shareholders (and the usual indifference of minor stockholders) to create coalitions to win any votes of the whole.
It is often the case that some outsider starts buying up shares. It doesn’t take much. Anything who amasses 5% of the shares can normally win a seat on the Board. If they can get control of 30% they can put in a slate of directors and probably can force the old management out.* In the extreme case of Apple that would be a ridiculous $187 billion. Nobody owns Apple. It’s all about control of voting. If a small percent of stock swings that can have a profound effect. It’s all indirect, though. A company can’t lose control of it; it never had control of itself to begin with. That’s true even if the stock is not publicly sold.
*What if current management refuses? Then a stockholders suit can be filed or a vote of all shares can be forced. It’s possible to exclude large stockholders but it’s rare and risky.
The existing shares are diluted by the issuance of new shares so unless the current owners buy the new issue (investing more cash in the company they already invested in), then they’ll own proportionally smaller shares.
A simple example would be Mr Zuckerberg and Facebook. Even after their IPO he still owns enough shares to control the company. If Facebook ever does a future IPO, there’ll be more shares out there and he’ll own a smaller portion of the company. He might lose his controlling interest.
I don’t really understand why FuzzyOgre is presenting that like it’s a dangerous or negative thing but it’s not incorrect.
Yeah, I didnt mean to suggest it was all that negative. You said what I tried to say, but far better. Thanks fellow Fuzzy.
Some companies structure things so that there are two types of stock; one with more voting rights than the other. The founders keep control of the company by owning more of the higher-voting class. I think this is how Google is structured, so that Larry Page, Sergey Brin and Eric Schmidt control the company.
I wonder where you might have heard that?