Share purchase plans are very popular these days. Small and large companies alike have been rushing to take advantage of them, with just a small sample including MYOB, Metcash, CBA and Bank of Queensland. The main reason for their growing popularity is that, in the right circumstances, they can be good for both the company and its small shareholders. As ever, though, the circumstances aren't always right.

Share purchase plans allow companies to issue a maximum of $5,000 in new shares to each existing shareholder without having to issue a prospectus. And, as well as being a cheap and easy way for companies to raise capital, the original purpose behind them was to give small shareholders the same opportunities as big institutions in capital raisings, namely a discount to the current market price.

The first plan was undertaken by CSR in 1991 when it offered shareholders $2,400 in new shares. There's no explicit law covering this type of issue, so they need express permission from the powers that be. These powers are now vested in the Australian Securities & Investments Commission (ASIC) and permission is almost automatic if the plan complies with ASIC's rules. In 2002, ASIC expanded these rules and increased the annual limit from $3,000 to $5,000. Since then, the plans have become much more common.

Visit The Intelligent Investor for the rest of this article on Share purchase plans and to find out more on buying shares.