So I am taking my series 6 and 63 exams to get licensed in securities as an additional side hustle to what I am already doing. In the class, a stockholders preemptive rights were explained as follows.
Lets say X corp. has 100 shares of stock issued. The professor then states that I own ten shares out of that hundred, then explicitly stated that meant that I own 10% of the entire company. This would mean that the entire ownership of X corp had already been issued in the form of 100 shares. X corp. then decides it will issue another 100 shares for a short term of 4-6 weeks. Because I have preemptive rights, they come to me and offer to sell me another 10 shares at a lower rate than the current market price so that I can maintain my current percentage of ownership.
My question is, how can they just issue more stock out of thin air if they have already issued out the entire ownership. This wreaks of the same smell that inflation does. Now, if they were to simply give me 10 more shares at no extra cost, this would seem fair, because if they double the amount of shares on the market, it essentially cuts my existing shares' value in half, right?
In other words, "thanks X corp. for selling me my own portion of the company!"
Or, am I missing something. Thanks.
"If men are not angels, then who shall run the state?"
Is the company going to sell the new stocks, i.e. they will get money in exchange for the new stock, i.e. the market cap of the company increases when they get money from the buuers of thew new shares, i.e. your 10 % won`t change in value after the new shares are sold, and the company has received the money from the buyers?
Johnny Doe:i.e. your 10 % won`t change in value after the new shares are sold, and the company has received the money from the buyers?
Interesting...i didn't think of that. Ok cool.
Another question. I was also told that these shares are only in existence for about 4-6 weeks, and no longer. This seems like an awfully short amount of time to really do anything with the money. Even if you could, why is it limited to such a short amount of time? Why not 4-6 months, or years if you wanted? Is there some law prohibiting this kind of activity?