Company Valuation: Before issuing shares, you need to determine the value of your company. This can be complex and depends on various factors like your company’s assets, earnings, market conditions, and future growth prospects.
This is more of a negotiation with the investor. You can compare the valuation of other similar companie sto arrive at your valuation.
Issuing New Shares vs. Transferring Existing Shares:
- Issuing New Shares: This means creating additional shares and offering them to investors. This increases the total number of shares and can dilute the ownership percentage of existing shareholders.
- Generally new shares are issued to the investors.
- Transferring Existing Shares: This involves selling shares that are already held by existing shareholders to new investors, without increasing the total number of shares.
- This is generally done if you are onboarding a co-founder without any facevalue
Example Calculation:
- Let’s say you have 10,000 shares in your company.
- An investor agrees to invest Rs 20 lakhs for a 20% ownership stake.
- To calculate the number of new shares to issue, you first determine the total shares post-investment. If 20% equals 2,500 shares, then 100% would equal 12,500 shares (since 2,500 is 20% of 12,500).
- You will issue 2,500 new shares (12,500 total shares post-investment minus the original 10,000 shares).
- The price per share can be calculated by dividing the total investment by the number of new shares. In this case, Rs 20 lakhs divided by 2,500 shares equals Rs 800 per share.
- The face value of the shares is a nominal value (often a small amount like Rs 10) set at the time of incorporation and doesn’t typically change.
Legal and Regulatory Compliance: In India, issuing shares involves complying with regulations set by the Ministry of Corporate Affairs and the Companies Act, 2013. You may need to amend your company’s Articles of Association, hold board and shareholder meetings, and file necessary forms with the Registrar of Companies.