Key points
- Issuing securities makes it possible to finance new projects or increase the share capital without borrowing from banks.
- Typical securities are ordinary shares, convertible bonds and share subscription warrants.
- The process involves preparation and the decision of the extraordinary general meeting (or of the board acting under a delegation), then, in the case of a public offer or admission to a regulated market, a prospectus and admission to the market.
- Its advantages include substantial financing and flexibility, but it brings legal complexity, dilution and high costs.
- For startups, it forms part of a multi-stage fundraising strategy and may use BSPCE and Stock Option Plans.
The issue of securities is a vital step to finance new projects or increase the share capital of companies and startups. This method makes it possible to raise funds without borrowing from banks, offering an attractive alternative for companies wishing to accelerate their growth. Ordinary shares, convertible bonds and share subscription warrants are typical examples of securities that can be issued.
In an issue of securities, the role of a fundraising lawyer becomes crucial to navigate the various legal complexities and to see that regulatory procedures are complied with. This professional acts as the link between the company and the regulators.
The types of securities issued vary according to the company’s specific financing needs. Ordinary shares give shareholders voting rights, convertible bonds offer an option to convert into shares, and subscription warrants allow the future purchase of shares at a set price.
The process of issuing securities involves several key steps, starting with the preparation and decision of the extraordinary general meeting (or of the board of directors acting under a delegation), followed, where applicable, by the drafting of a prospectus describing the offer, and finally by admission to the market so that investors can buy the securities.
Issuing securities offers many advantages, including access to substantial financing, greater visibility for the company, and considerable financial flexibility. However, it also presents challenges such as legal complexity, the dilution of the holdings of existing shareholders, and the high costs associated with the whole process.
For startups, this financing method is often part of a multi-stage fundraising strategy, ranging from the Seed stage to Series B. Young companies may also choose to issue securities via crowdfunding platforms to reach a wider and more diverse investor base.
The use of innovative mechanisms such as Stock Option Plans (SOP) and BSPCE (Bons de Souscription de Parts de Créateur d’Entreprise, French start-up share warrants) is common to attract and retain talent while limiting rapid dilution of the founders’ stakes.
The role of law firms such as Hashtag Avocats is to support an effective negotiation with investors and to optimise investment structures to maximise the benefit to stakeholders. These legal experts provide essential support throughout the process, from the preparation of the documents to the finalisation of the investment agreements, in order to make the securities issue legally sound.
What does issuing securities mean?
Issuing securities means that a company creates and offers new securities (shares, bonds, securities giving access to the share capital) in order to raise funds from the public or from private investors. This allows companies to finance themselves without taking out a bank loan. The securities usually issued include ordinary shares, convertible bonds and share subscription warrants.
The role of a lawyer in a fundraising often proves decisive in these situations. Their expertise helps ensure that all legal formalities are completed accurately.
Types of securities issued by companies
When a company issues securities, it can choose between different types of securities according to its financing needs:
- Ordinary shares: Represent a share in the ownership of the company and carry a vote at general meetings.
- Convertible bonds: These are loans that can be converted into shares after a certain period.
- Share subscription warrants: Allow holders to acquire additional shares at a predetermined price.
How a French company issues shares and other securities
Understanding the process of issuing securities is crucial for a company seeking to raise funds. Here are the main steps:
Preparation and decision
Before issuing securities, the company must obtain a decision of the extraordinary general meeting, which alone has the power to decide on a capital increase (Article L. 225-129 of the French Commercial Code (Code de commerce) (in French)); the meeting may delegate this power to the board of directors for a maximum of twenty-six months (Article L. 225-129-2 (in French)). This involves setting the terms of the offer, such as the number of securities to be issued, their type, and the price at which they will be offered.
Prospectus and legal documents
In the case of a public offer of securities or admission to a regulated market, drafting a prospectus describing the securities offer is mandatory, unless an exemption provided for by Regulation (EU) 2017/1129 (Article 3) applies. This document must contain precise information on the company, its financial performance, and the risks associated with the investment.
Admission to the market
Once the prospectus has been approved by the competent authority (Article 20 of Regulation (EU) 2017/1129), the company can apply for its securities to be admitted to listing on a stock exchange. This step makes the securities accessible to the investing public.
Advantages and challenges of issuing securities
Issuing securities offers companies several advantages, but also involves challenges that must be anticipated and managed.
Advantages
The main advantages of issuing securities include:
- Access to substantial financing: Makes it possible to raise considerable sums without resorting to bank credit. Bonds nevertheless remain debt securities until any conversion.
- Greater visibility: Issuing securities on a public market often increases the company’s visibility and credibility.
- Financial flexibility: The funds raised can be used for specific projects or to strengthen the financial structure.
Challenges
The challenges of issuing securities include:
- Legal complexity: The need to comply strictly with regulations and with any compliance updates.
- Dilution of shareholdings: Existing shareholders see their share of the capital decrease when new shares are issued.
- High costs: The process involves significant expenses, including those linked to preparing the legal documents and lawyers’ fees.
Startups: specific features and strategies
For startups, issuing securities is often an integral part of fundraising strategies. Young companies use different approaches to convince investors to join their venture.
Issues via crowdfunding platforms
Many startups opt for crowdfunding platforms to issue their securities. This lets them reach a wide range of potential investors, from curious individuals to professional investors seeking diversity in their portfolios.
Multi-stage fundraising
Startup fundraising rounds generally take place in several stages: Seed, Series A, Series B, etc. Each stage aims to support the company’s gradual development while adapting the amount of securities issued to each growth cycle.
Use of innovative mechanisms
Startups also explore innovative mechanisms such as Stock Option Plans (SOP) and BSPCE (French start-up share warrants). These financial instruments make it possible to attract and retain key talent while avoiding rapid dilution of the founders’ stake.
The role of law firms
Calling on a law firm that acts on fundraising transactions, such as Hashtag Avocats, lets companies approach the complex process of issuing securities with peace of mind. The legal experts provide:
- Assistance throughout the process, from preparing the documents to the actual issue of the securities.
- Strategic advice to optimise the fundraising and minimise legal risks.
- Assistance in negotiations with potential investors and appropriate structuring of securities offers.
Why legal audits matter
Preliminary legal audits check that the company complies with the regulations in force. They play a key role in:
- Checking the accuracy of the information given to investors in the prospectus.
- Validating the clauses of the securities issue agreements to avoid possible future disputes.
- Highlighting the potential risks associated with the transaction and proposing solutions to mitigate them.
Protecting stakeholders’ interests
Lawyers also see that the interests of the various stakeholders (founders, investors, employees) are protected. They ensure:
- Clear and transparent offer terms to avoid conflicts of interest.
- A proper allocation of the company’s shares between existing and new shareholders.
- Respect for the rights of small investors, who are often less informed but crucial to a successful fundraising.
A good understanding of issuing securities and the support of legal experts therefore remain essential to achieving financial objectives while strengthening legal certainty for both the company and the investors. This not only helps attract valuable capital but also consolidates stakeholders’ trust over the long term.
