Legal Definitions - cum rights

The term "cum rights" is a Latin phrase meaning "with rights." In the context of financial markets, particularly with stocks, it refers to a situation where a security is bought or sold along with all associated benefits or entitlements that have been officially announced or declared by the issuing company, but have not yet been physically separated from the security or distributed to shareholders.

Essentially, when you purchase a stock cum rights, you are acquiring not only the stock itself but also the right to receive any declared but not yet distributed benefits attached to it. This is important for investors to understand what they are truly purchasing and for determining the fair value of the security.

Here are a few examples to illustrate this concept:

• Special Cash Dividend: Imagine a company, Tech Innovations Inc., announces a special one-time cash dividend of $2 per share, payable to all shareholders of record on a specific future date. An investor purchases shares of Tech Innovations Inc. "cum rights" before this record date.

  How it illustrates "cum rights": By buying the shares cum rights, the investor is entitled to receive the $2 per share special dividend, even though the actual payment will occur after their purchase. The right to that declared dividend was included with the shares they bought.

• Bonus Share Issue: Suppose Global Manufacturing Corp. declares a 1-for-10 bonus share issue, meaning for every ten shares an investor owns, they will receive one additional share for free. These bonus shares are scheduled to be distributed in a few weeks. An investor buys 1,000 shares of Global Manufacturing Corp. "cum rights" today.

  How it illustrates "cum rights": The investor will receive 100 bonus shares (1,000 shares / 10) when they are distributed. They acquired the original 1,000 shares along with the declared, but not yet distributed, entitlement to these additional bonus shares.

• Subscription Rights for New Shares: A pharmaceutical company, Health Solutions Ltd., announces a "rights issue" to raise capital, giving existing shareholders the option to purchase new shares at a discounted price. These subscription rights are to be mailed out to shareholders next month. An investor buys shares of Health Solutions Ltd. "cum rights" before the date these rights are distributed.

  How it illustrates "cum rights": The investor will receive the subscription rights, which allow them to buy new shares at the preferential price. They purchased the existing shares with the declared, but not yet distributed, entitlement to participate in this new share offering.