The topic of “subscription rights in the event of a capital increase” may seem complex at first glance, but it is a central aspect of stock corporation law and is important for every shareholder. In this article, we will take a closer look at the concept of subscription rights and explore their role in the context of a capital increase.
Basics of Capital Increase
A capital increase is a process in which a stock corporation (AG) increases its share capital by issuing new shares. There can be various reasons for this: Sometimes the company wants to raise fresh capital for investments, in other cases it is about repaying debts or strengthening the equity base.
However, there is a problem for existing shareholders: the issue of new shares dilutes their stake in the company. This means that a shareholder’s relative ownership stake decreases, even if the absolute number of their shares remains unchanged. The so-called subscription rights come into play to prevent or at least mitigate this dilution.
What are Subscription Rights?
A subscription right gives the existing shareholder the right to acquire new shares in the event of a capital increase and thus maintain their percentage share in the company. Each shareholder receives subscription rights for their existing shares in proportion to the planned capital increase. This gives them the opportunity to keep their relative stake in the AG constant by acquiring the new shares in proportion to their previous stake.
How Subscription Rights Work
A simple example: Let’s say an AG with 1,000 outstanding shares carries out a capital increase of 10%. This means that 100 new shares will be issued. A shareholder who owns 100 shares (i.e. 10% of the company) now has the right to acquire 10 of these new shares – and thus maintain their 10% stake.
Value and Trading of Subscription Rights
Subscription rights have a monetary value. If a shareholder decides not to exercise their subscription right, they can usually sell it on the stock exchange. The value of the subscription right is the difference between the stock exchange price of the share and the price at which the new shares are issued as part of the capital increase.
Importance of Subscription Rights for Shareholders
The main function of subscription rights is to protect the interests of existing shareholders. Without such a right, their shares would automatically be diluted as soon as new shares are issued. Subscription rights therefore offer shareholders the opportunity to maintain their position in the company or to decide whether they want to exchange the dilution effect for a potential financial gain (by selling the subscription rights).
Exercise on Subscription Rights
Subscription rights in the event of a capital increase are an exciting and important topic in stock corporation law. They ensure that the interests of existing shareholders are taken into account and enable them to make an active decision regarding their investment in the company.
For students who want to deepen their understanding of the concept of subscription rights and their application in practice, I strongly recommend looking at practice exercises on this topic. They help to consolidate the knowledge learned and provide a solid preparation for possible exam situations. In the textbook Fundamentals of Financing and Investment: With Case Studies and Exercises (De Gruyter Studium)*, there is exercise 3.4 on capital increase, which should be done for revision.
In summary, it can be said that although the subject matter may seem complex at first glance, a solid understanding of subscription rights is essential to truly understand the dynamics of capital increases and the rights of shareholders.
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