Rights Issue
A rights issue is when a company offers its existing shareholders the chance to buy new shares, usually at a discounted price.
Quick Reference:
Existing shareholders only. Usually below market price. Raises capital.
Expanded Explanation:
Companies sometimes need extra money to expand, reduce debt, or strengthen their finances. A rights issue gives current shareholders the “right” to buy new shares in proportion to the shares they already own. The new shares are typically cheaper than the market price, it is designed as an incentive.
Shareholders can either take up the rights and buy more shares, sell the rights on the market, or do nothing. If you do nothing, your shareholding percentage is diluted because more shares exist in the company. For beginners, rights issues are important to understand because they affect your ownership and sometimes your decision making as a shareholder.