Rights Offerings
What It Is
A rights offering gives existing shareholders the right to purchase additional shares at a discount before the company offers them to the public.
Why It Matters
It allows companies to raise capital while giving current shareholders the first opportunity to maintain their ownership percentage.
How It Works
- Company issues rights to shareholders
- Rights allow discounted share purchases
- Rights may be tradable
- Unused rights may expire
Key Components
- Subscription price
- Subscription ratio
- Tradable vs non‑tradable rights
- Dilution protection
Example
A company may offer shareholders the right to buy one new share for every five they own at a discounted price.
Key Takeaways
- Rights offerings raise capital efficiently.
- They protect shareholders from dilution.
- Participation depends on investor confidence.