Dilution

A reduction in an existing shareholder’s percentage ownership of a company can result when the total number of shares outstanding increases. For example, if new shares are sold to investors, a shareholder who does not acquire additional shares may own a smaller portion of the company afterward, even though the number of shares that the shareholder personally holds has not changed. Dilution may also reduce a shareholder’s voting power or economic interest in the company.

Dilution can result from public or private offerings, warrant exercises, convertible securities, employee equity awards, or other issuances. A company may raise useful capital through a dilutive transaction, but an investor should evaluate both the amount of new capital raised and the percentage of the company that existing shareholders will own after the new securities are issued.

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