Shares, or rather the percentage ownership they represent, becomes diluted when new shareholders are brought into the business via the issuing of new shares. Let’s say Jim owns 100 shares in ABC Company Inc., which is 100% of the business. His company issues 50 shares to a new investor, Bob. In this case, Jim’s ownership percentage in the business has gone from 100% to 66% by bringing on this new shareholder. That’s dilution in its most basic form.