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Right Shares

A right share is issued to existing shareholders that entitles them to buy additional shares directly from the company in proportion to the existing holding, within a fixed time period. In a rights offering, the subscription price at which is share may be purchased in generally at a discount to the current market price. Rights are often transferable, allowing the holder to sell them on the open market.


For example, a company whose stock is trading at ₹ 20 may announce a rights offering whereby its shareholders will be granted one right for each share held by them, with four rights required to buy each new share at a subscription price of ₹ 19. The company will also specify that the rights expire on a certain date, which is usually anywhere from one to three months from the date of announcement of the rights offering.


The issue of right shares serves two purposes:
  1. It preserves the power of control of the present shareholders.
  2. It prevents loss to the existing shareholders on account of dilution in the value of their stake holding.

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