Understanding Fractionalization: A Guide to Modifying Ownership Structure and Issuing New Shares

Fractionalization is a process by which a company's ownership structure is changed so that the existing shares are split into a larger number of shares, but with a lower par value. This can be done for a variety of reasons, such as to make the shares more affordable for small investors or to increase the liquidity of the stock.

For example, if a company has 1 million shares outstanding with a par value of $100 per share, the total market capitalization of the company would be $100 million. If the company undergoes a 2-for-1 split, the number of shares outstanding would double to 2 million shares, but the par value of each share would be reduced to $50. The total market capitalization of the company would remain the same at $100 million.

Fractionalization can also refer to the process of creating new classes of shares with different voting rights or other characteristics. For example, a company might create a new class of shares that has 10 times the voting power of the existing shares, but with a lower par value. This could allow the company to issue more shares without diluting the voting power of the existing shareholders.

Overall, fractionalization is a way for companies to modify their ownership structure and issue new shares in a way that can be beneficial for both the company and its shareholders. However, it is important to carefully consider the potential effects of fractionalization on the company's capital structure and governance before making any changes.