Increase of authorized capital stock

How to correctly add to PP event of increase of autorised capital? It differs from stock split IMHO

Hey Darelas,

can you explain to us what exactly happens at the “event of increase of authorized capital”?

I have the same situation. Basically you get free shares on capital increase. Eg. if by ex-date I had 100 shares then I would get 100 more (in my case). Tried to use split but it does not allow 1 for 1. Tried to ‘buy’ with 0 price - does not allow as well. Maybe it’s possible to ‘buy’ for default share nominal value and then deduct that amount somehow.

That’s a 2:1 split (Anglo-American notation), or a 1:2 split (German notation).

1 Like

Hey Token,
thanks for clearifying.

A split would be a two for one in your example, howver, such a split would reduce the shares price including all histotic rates. Hence a split cannot be the solution.

In any case the new shares need to come into PP with its real value. This could be done by either buying them or by delivering them.
Buying them could be done by generating a dividend and buying new shares from that. The disadvantage is that this does not reflect the real performance of the security behind the shares.
Delivering the shares to PP on the other side does not make transparent that the shares were not bought physically.

It come down to that It depends on how you want to see it in PP.

Real example:

"Increase of the authorised capital out of the Company’s funds.

To increase the Company’s authorised capital out of the Company’s funds from EUR 19,053,000 (nineteen million fifty-three thousand euros) to EUR 38,106,000 (thirty-eight million one hundred and six thousand euros) by issuing 65,700,000 (sixty-five million seven hundred thousand) ordinary registered shares with a nominal value of EUR 0.29 (twenty-nine cents). The decision to increase the authorised capital out of the Company’s funds is adopted on the basis of the year 2020 financial statements of the Company.

To issue to the shareholders the newly issued ordinary shares with a nominal value of EUR 0.29 (twenty-nine cents) for no consideration, with the number of the shares to be in proportion to the nominal value of the shares owned by them at the close of the rights accounting day of the General Meeting of Shareholders which adopted the decision to increase the authorised capital.

With respect to the adopted decision above, to amend articles 3.1. and 4.1. of the Articles of Association of the Company and to set out them as follows:

„3.1. The authorised capital of the Company is EUR 38,106,000 (thirty-eight million one hundred six thousand euro).

„4.1. The authorised capital of the Company is divided into 131,400,000 (one hundred thirty-one million four hundred thousand) ordinary registered shares. The nominal value of one share is EUR 0.29 (twenty-nine cents).”

And happens that: I, as a shareholder, now have 200 stocks instead of 100. Should I make a split on PP? What worries me is that split doesn’t mean a capital increase (split is only share dividing), so I don’t know if the data will be correct.

It’s irrelevant how a split is implemented in the company’s books; a split is a split. However, I would generally recommend not to use the current split implementation in PP, which retroactively changes all transactions and prices from before the split. For the time being, it is best to record a split by an outbound and an inbound delivery combination: same day, same total value.

Hey Darelas,

This sounds to me like a dividend.

@Darelas, did your value of that security change, i. e. were the original shares more than 29 Cents before that capital increase?

yes, the stock price was 1.71 and the next day fell to 0.97, i. a little less than double (so dividing by 2 isn’t quite right).

Maybe the official chart of that security helps to understand what happend:

It could have been handled as a 2:1 split with a rise of the price per share of 0,97 EUR-1,71 EUR/2=11,5 Cents. This would be indicated by older prices in the charts being reduced (compared to what you were used to).

It also could have been a doubling in value with a drop per share of 2*0,97 EUR-1,71 EUR=13 Cents.

Can you share which security is was and when the moment was?

Not really, with 2:1 I would get 50 for 100 (or the other way round). I need 100 for 100.

Grigeo, 2021.05.12
https://finance.yahoo.com/quote/GRG1L.VS?p=GRG1L.VS&.tsrc=fin-srch
https://www.tradingview.com/chart/?symbol=GRG1L
The charts look totally different BTW

Hey Token,

I think when talking about a split 2:1 means you get 2 shares per one share, without having the originals anymore. When you have 100 shares before split and 200 shares after split it is a 2:1 split.

2 Likes