A capital increase is the process of a company issuing new shares to finance investments, acquisitions, or to help rebalance its financial structure. This is especially true for companies that are highly indebted. The company's capital reserves can be converted into share capital if, together with legal reserves, they make up more than 10 percent of the share capital (or a higher percentage as stipulated in the company's statutes).When a company decides to increase its capital, it can do so in two ways: by issuing new shares or by increasing the nominal value of existing shares. The former is known as a capital increase through the issuance of new shares, while the latter is known as a capital increase through the increase of nominal value. A capital increase through the issuance of new shares is usually done when a company needs to raise funds for investments or acquisitions.
This type of capital increase is also known as a rights issue, since shareholders are given the right to purchase additional shares at a discounted price. The company will then use the funds raised from this process to finance its investments or acquisitions. On the other hand, a capital increase through the increase of nominal value is done when a company wants to strengthen its financial structure. This type of capital increase is also known as a bonus issue, since shareholders are given additional shares without having to pay anything for them. The company will then use the funds raised from this process to pay off its debts or to strengthen its financial structure. In both cases, the company's share capital will be increased and its financial structure will be strengthened.
This will also have an impact on the company's stock price, since it will be seen as a sign of financial strength and stability.
