Conflicts of interest during rights issues and private placements in Swedish close companies
Abstract: Our purpose is to provide insight into the displacement of power and conflicts of interest that might appear during rights issues and private placements, primarily in private Swedish close companies. We investigate whether the protection for shareholders is too weak, and analyze whether rights issues and private placements maximize the company value in close companies without contradicting the legal protection every shareholder is entitled to. We make a comparison between listed and unlisted companies and choose a qualitative approach with case studies. Literature and research from studies of listed companies have been applied on unlisted close companies. Both rights issues and private placements open up for new investments. Especially in times of crisis they are important. However, in case of rights issues, a dilution effect with loss of influence power and economic value may occur since there is no efficient market for trading subscription rights of close companies. The effect is even more obvious in case of private placements as not all shareholders are allowed to take part. Therefore, the idea to put the business and profit maximization in focus must be in line with the fact that all the shareholders should be treated equally. In a rights issue, shareholders have the same right in listed as well as unlisted companies to participate in the issue. In the case of non-cash issues, it is important that the capital contributed in kind is economically valuable and useful to the issuing company. We conclude that the primary protection for shareholders, the principle of equality and the general avoidance provisions, is not sufficient. Rights issues or private placement can benefit companies and shareholders, but one cannot guarantee that this is not done at the expense of other shareholders.
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