222 5 Equity and Shareholders’ Capital
volume benchmark (the average daily trading volume of the subject class of its se-
curities in the United States has been five percent or less of the worldwide average
daily trading volume of such securities for a recent twelve-month period) and (ii) a
revised version of the 300-holder benchmark contained in the prior rules (it has
less than 300 record holders on a worldwide basis or who are US residents).
5.10 Shares as a Source of Cash
5.10.1 General Remarks
Shares can be offered to investors in a number ways. New shares can be offered
for subscription. Existing shares can be offered for sale. Both new and existing
shares can be offered to the public or placed. Alternatively, the offer can be made
to intermediaries that allocate the shares to their own clients.^435
Shares can be issued for cash for many reasons. This reflects the fact that
shareholders can be providers of funding and/or ancillary services. (a) For exam-
ple, the company may want to cement a business relationship (and the provision of
“ancillary services”) through the issuing of shares to a strategic investor who sub-
scribes for shares in order to obtain private business benefits. (b) The company
may need fresh capital or more equity capital, and existing shareholders, a finan-
cial investor, or a venture capital firm may be regarded as suitable sources of
funding. (c) The issuing of new shares for cash and increasing the number of
shareholders can also be the first step towards existing shareholders’ exit. An ini-
tial public offering (IPO) will often be executed through the issue of new shares
for a cash consideration to new investors.
The issuing of shares for cash raises many questions of company and securities
markets law. For example, provisions of company law address questions of inter-
nal decision-making, the price payable for the shares, and verification of payment.
If applicable, provisions of securities markets law set out extensive disclosure du-
ties.
Company law. The European legal capital regime applicable to all public lim-
ited-liability companies means that the use of shares as a source of cash is gener-
ally constrained by mandatory provisions of law protecting shareholders and
creditors.
Many questions relating to shares and legal capital are therefore decided on by
shareholders. According to the Second Company Law Directive, the general
meeting decides on “any increase in capital”^436 and the authorisation of a company
body to decide on an increase in the “subscribed capital”.^437
(^435) See Ferran E, Principles of Corporate Finance Law. OUP, Oxford (2008) pp 419–420.
(^436) Article 25(1) of Directive 77/91/EEC (Second Company Law Directive).
(^437) Article 25(2) of Directive 77/91/EEC (Second Company Law Directive).