Owning shares in a company is an important system that brings different rights to the partner of the company. Preemption right, which is among these systems, brings with it the right to purchase new shares before the paid-in capital increase. In order to best understand pre-emptive rights, it is very important to participate in the paid-in capital increase and to understand this increase correctly.
Every company may have various financial needs from time to time, and in such cases, borrowing or turning to company partners is considered as an option. When faced with this situation, approaching the partners is generally considered a better choice than taking on new debt. This is because partners do not have a fixed commitment period for the capital they invest in the company, and there is no requirement for repayment.
In such situations, the company can issue new shares, including them in the existing shares, and apply for a capital increase to distribute these to the partners for financing. This is referred to as a "paid-in capital increase," and it's important to note that partners have a preferential right to purchase these shares, known as a "preemptive right."
The preemptive right is the preferential right of a shareholder to participate in a paid-in capital increase. Consequently, the time frame for exercising the preemptive right is typically between a minimum of 15 days and a maximum of 60 days. If existing partners wish to participate in the paid-in capital increase, it is mandatory for them to exercise their preemptive right within this period. Shareholders have the discretion to decide whether they want to exercise their preemptive rights or not. If they choose to do so, they also reserve the right to purchase new shares. However, when they exercise these rights, it is understood that they do not wish to participate in the new capital increase. In such cases, there is no objection to trading the company's shares and preemptive rights on the stock exchange.
If the preemptive right is not exercised, the price of the shares is expected to decrease after the paid-in capital increase, leading to an inevitable decrease in the total assets since the shareholder's share count remains the same. Each preemptive right held represents a new purchase coupon for each share in your possession, and you are expected to make a payment equal to the preemptive exercise price determined by the company for each new purchase coupon. This is how these coupons are converted into shares, allowing for an increase in the total number of general shares held.
However, it is also possible to sell the existing subscription coupon in the market at the current coupon price without converting it into shares before the new subscription coupon is used. However, in this case, it is inevitable that the total assets will decrease due to the decline in the stock price after the paid-in capital increase.
When you want to exercise your preemptive rights, you can apply to the brokerage firm to carry out the transaction. You can have subscription coupons defined for you in the investments section and after selecting this coupon, you can also participate in the paid-in capital increase. In addition, you can take advantage of the opportunity to convert these coupons into shares or offer them for sale at market prices.
If you do not exercise your preemptive rights, even if other shareholders participate in the paid-in capital increase, you will not have participated. As a result, you lose the right to purchase the newly issued shares. If the preemptive right is not exercised, in other words, if participation in the paid-in capital increase is not ensured, an undesirable decrease in the total asset value occurs. After the company's paid-in capital increase, the stock price decreases. Therefore, a decrease in the total value of the shares owned by the shareholders occurs.
Preemptive right is one of the commonly encountered terms in the stock market. In this context, preemptive right offers existing shareholders the chance to participate in capital increases with cash contributions before others. This right is based on a system where new shares are issued without the need for separate share certificates, usually in the form of new share acquisition coupons.
The preemptive right coupon market is a market that allows trading of the new share acquisition coupons attached to the shares of companies listed on the stock exchange when they include the preemptive right usage period to make a cash capital increase. In order to buy, sell, or transfer the new share acquisition coupons on the stock, the transactions must be carried out within the timeframe determined by the Istanbul Stock Exchange (İMKB). This market starts at the same time as the company's preemptive right usage period and closes on the 5th business day after the end of the preemptive right usage period.
There are two main reasons that drive every company to increase its capital. The first reason is the need for parallel capital to increase the various activity volumes of the company. The second reason is that when new investments are made, companies may require an additional fund, and part of this required fund is usually obtained through capital increases. In the case of a paid capital increase, an additional source of financing is created for the company. While this source is generally obtained from existing shareholders, in some cases, the preemptive rights of existing shareholders are restricted, and new shareholders are given the opportunity to use this option at a premium. This allows companies acquiring new shareholders to meet their need for an additional fund.
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