The act of reducing the proportion of ownership held by current investors through issuance of new shares of COMMON STOCK (or through the exercise of outstanding stock OPTIONS or the conversion of CONVERTIBLE BONDS). In order to protect investors against dilution from new issuance, a company may choose to float a RIGHTS ISSUE, giving existing shareholders the right of first refusal in taking up new shares. See also FULLY DILUTED BASIS.

More On This Topic

Link to This Definition
Did you find this definition of DILUTION helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary