A company cannot issue unlimited shares without concern for existing shareholders - taken to the extreme, doing so reduces the value of all holdings to zero.
For example, if Elon goes to 16% ownership why doesn’t the board just distribute new shares to existing owners pro-rata to the point where Elon is back to 15%?
All of this seems pretty sketchy to me. I don’t see how the board is legally allowed to do this.
But it can sell shares to some and not others [1]. (This was a landmark decision [2].)
[1] https://law.justia.com/cases/delaware/supreme-court/1985/493...
[2] https://en.wikipedia.org/wiki/Unocal_Corp._v._Mesa_Petroleum....
Having the board ignore a large shareholder would be one thing. Shares give votes, and terms don't turn over every day, and we don't kick out politicians as soon as the polls turn sour on them. Fine. But if a shareholder has enough shares to change the board composition (or just threatens to) the incumbents can just unilaterally decide that the challenger owns a smaller fraction of the company than they bought on the open market? Maybe it's not technically self-dealing, but it's bad.
When the board triggers this clause, they may sell shares to existing shareholders at a discount. These are new shares. Companies have every right to sell shares outside of the exchange they’re listed on… and they do that all the time, through employee grants or options, for example.
When raising funds they generally sell new shares on the exchange, because that’s the highest price they can obtain for the share.. but they don’t have to do that.
And yes, in case you didn’t know, companies can sell as many shares as they want.