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Capital Increase

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Capital increase is understood as that financial operation aimed at increasing the own resources of a company in order to undertake new investments or for financing needs.

Companies can increase their assets in three different ways:

- Issuing new shares;
- Increasing the nominal value of existing shares.
- By charging the company's undistributed profits - the reserves -, in which case the shareholders won't have to contribute money and will receive free (free) shares.

Types of capital increases

The issuance of shares can be done on a par, that is, for the nominal value of the new shares, although it can also be done on par, so that those investors who wish to go to the extension must pay an additional amount, which It's added to the company's reserves and is called the issuance premium. The issuance of shares under par - with an amount below the nominal value - is prohibited.

When a company increases its capital according to the first system - at the same time - it increases the number of outstanding shares, which reduces the book value of each security - that is, the company is worth the same but is divided into more securities -. It's what is known as dilution effect. To avoid this effect, an issuance premium is usually required, so that new shareholders also pay for the company's reserves, of which they also become owners.

The extensions released can be:

- Totally, in which case the shareholders don't have to make any disbursements - the money is obtained from the company's reserves.
- Partially, when the shareholder must disburse a portion of the extension that isn't covered by balance sheet reserves.

The idea that fully released extensions are a way of giving back to the shareholder can be equivocal, since although he receives a number of free shares, the value of the company isn't modified and, therefore, the total value of the shares continues being the same, although there are now more titles in circulation.

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