By
August 26, 2026
What happens to existing shareholders when new shares are issued?
When a UK limited company issues new shares, the ownership percentages of existing shareholders may decrease. This is known as share dilution.
Existing shareholders do not normally lose any of the shares they already own. However, because the company has more shares in issue, each existing holding may represent a smaller percentage of the company.
New shares can also affect voting control, dividend entitlement, capital rights and a shareholder’s status as a person with significant control.
Share dilution happens when a company issues additional shares without giving existing shareholders enough new shares to maintain their current percentages.
For example, a company has 100 ordinary shares. One shareholder owns all 100 and therefore owns 100% of the company.
The company issues another 100 identical shares to an investor. There are now 200 shares in total.
The original shareholder still owns 100 shares, but their ownership falls from 100% to 50%. The new investor owns the other 50%.
No. Existing shareholders normally retain the same number of shares.
What changes is the percentage those shares represent.
For example, an existing shareholder holds 40 shares out of 100, representing 40%. The company issues 100 new shares to other investors.
The shareholder still owns 40 shares, but there are now 200 shares in total. Their ownership falls to:
40 ÷ 200 × 100 = 20%
Potentially. Existing shareholders may have pre-emption rights that allow them to buy a proportional share of the new issue.
For example, a shareholder owns 30% of the company. If 100 new shares are offered, they may have the right to purchase 30 of those shares to maintain their 30% ownership.
Pre-emption rights may arise from:
These rights may sometimes be waived or disapplied using the correct procedure.
Statutory pre-emption rights generally apply when a company issues certain equity securities for cash.
The company may need to offer the shares to existing eligible shareholders:
The exact rules depend on the type of company, the shares being issued and whether the rights have been validly excluded or disapplied.
Yes. Pre-emption rights provide an opportunity to participate, not an obligation.
A shareholder can decline the offer. The company may then be able to issue the shares to another person under the terms of the offer and applicable approvals.
If the shareholder does not participate, their ownership and voting percentages may decrease.
If the new shares carry voting rights, existing shareholders may control a smaller proportion of the company’s votes.
For example, a shareholder controls 60 of the company’s 100 voting shares, giving them 60% of the voting rights.
The company then issues 50 new voting shares to an investor.
The existing shareholder’s voting power becomes:
60 ÷ 150 × 100 = 40%
The shareholder has moved from majority control to a minority voting position.
Dilution may cause an existing shareholder to fall below an important voting threshold.
Common thresholds include:
Falling below one of these thresholds can materially reduce a shareholder’s control or influence.
If the new shares have the same dividend rights as existing shares, future dividends will be divided across a larger number of shares.
For example, a company previously had 100 ordinary shares and declared a total dividend of £10,000. Each share would receive £100.
If the company issues another 100 identical shares and later declares the same £10,000 total dividend, each of the 200 shares would receive £50.
The existing shareholder keeps the same number of shares but receives a smaller proportion of the total dividend.
Dividends depend on the amount declared, distributable profits and the rights attached to each class.
Not necessarily.
Issuing shares may provide the company with capital that helps it grow. If profits increase, future total dividends could also increase.
Dilution reduces a shareholder’s percentage entitlement, but it does not automatically mean the cash value of future dividends or shares will fall.
The commercial result depends on how effectively the company uses the new investment.
The effect depends on the issue price, the company’s value and the purpose of the funding.
A properly priced share issue can bring additional capital into the company and support growth.
An issue at an unjustifiably low price could transfer value from existing shareholders to new investors.
Directors must exercise their powers for a proper purpose and act in accordance with their legal duties when setting the issue terms.
Shares can generally be issued at their nominal value or at a higher price. They cannot be issued below their nominal value.
If a £1 share is issued for £100:
The issue price should be considered carefully, especially where shares are issued to directors, employees, relatives or connected persons.
Dilution is more complicated when a company issues a different share class.
New shares may carry:
An existing shareholder’s percentage of total shares may decrease without an equivalent reduction in voting power if the new shares are non-voting.
Alternatively, a relatively small new class with enhanced voting rights could significantly reduce existing shareholders’ control.
Yes. Preference shares may rank ahead of ordinary shares when dividends are paid or capital is returned.
Existing ordinary shareholders may therefore be affected even if their number of votes remains unchanged.
New investors might receive:
These rights can reduce the economic or strategic position of existing ordinary shareholders.
Economic dilution occurs when a shareholder’s financial interest is reduced.
This may happen through:
Economic dilution may occur even where voting power is largely unchanged.
Fully diluted ownership estimates each person’s percentage as if all outstanding rights to acquire shares were exercised or converted.
It may include:
For example, a founder owns 600 out of 1,000 issued shares, representing 60%.
If options exist over another 200 shares, the fully diluted total is 1,200. The founder’s fully diluted percentage is:
600 ÷ 1,200 × 100 = 50%
Yes. A share issue can create, remove or change a person with significant control.
A person may qualify as a PSC if they:
For example, a shareholder diluted from 30% to 20% may cease to satisfy the share-ownership condition, although another PSC condition could still apply.
The company must update and report relevant PSC changes.
Yes.
For example, a founder owns 60 out of 100 voting shares, giving them 60% control.
The company issues another 50 voting shares to an investor. The founder’s percentage falls to 40%.
Although the founder holds the same 60 shares, they no longer have a voting majority.
Yes.
A shareholder controlling more than 25% of voting rights may be able to prevent a resolution from reaching the 75% threshold where all relevant votes are cast.
If a new issue reduces their voting rights to 25% or below, they may lose that blocking position.
The precise outcome depends on the votes cast, the articles and any contractual consent rights.
Yes. A shareholders’ or investment agreement may provide:
These protections should be consistent with the company’s articles.
Anti-dilution protection may adjust an investor’s rights if the company later issues shares at a lower price.
Common mechanisms include:
Anti-dilution provisions can be complex and may significantly affect founders and other shareholders.
Not always.
The directors may have authority to allot shares, particularly in a private company with only one class of shares. However, shareholder approval may be required where:
The company must check all applicable documents before completing the issue.
Existing shareholders should consider:
A before-and-after cap table can help show the impact clearly.
The company must normally:
The company should retain all board and shareholder approvals with its records.
Companies and shareholders should avoid:
No. They may have pre-emption rights, but they must usually accept the offer and pay the required price to receive additional shares.
Not necessarily. If all shareholders receive new shares in proportion to their existing holdings, their percentages may remain unchanged.
Possibly, depending on their voting power, pre-emption rights, class rights, the articles and any shareholders’ agreement.
Yes. New voting shares can reduce a founder’s percentage below important decision-making thresholds.
They can dilute total share ownership and economic rights even if they do not reduce general voting control.
Not automatically. The percentage becomes smaller, but new investment may increase the company’s total value.
When a UK company issues new shares, existing shareholders keep their current shares, but their ownership, voting and dividend percentages may decrease.
The impact depends on the number, price and class of the new shares. Pre-emption rights may allow existing shareholders to participate and maintain their percentages.
Before issuing shares, the company should calculate the effect on ownership, control, dividends, capital rights and PSC status. Legal, tax and valuation advice may be appropriate for significant or complex issues.
This article provides general information and does not constitute legal, tax or financial advice.
