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LSDefine
Simple English definitions for legal terms
rights offering
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A quick definition of rights offering:
A rights offering is when a company gives its current shareholders the chance to buy more shares of stock at a fixed price. This price is usually lower than what the stock is currently worth. Shareholders can buy more shares in proportion to the number of shares they already own. This is called a privileged subscription. It's like a special sale just for the people who already own part of the company.
A more thorough explanation:
A rights offering is a type of securities offering where a company issues stock-purchase rights to its existing shareholders. These rights allow shareholders to buy newly issued stock at a fixed price, usually below market value, and in proportion to the number of shares they already own.
For example, if a company has 100,000 shares outstanding and decides to issue 10,000 new shares through a rights offering, each shareholder would receive one right for every ten shares they own. If a shareholder owns 100 shares, they would receive 10 rights, which would allow them to purchase 10 new shares at the fixed price.
The purpose of a rights offering is to give existing shareholders the opportunity to maintain their proportional ownership in the company and to raise capital without diluting their ownership. It is also a way for companies to reward their loyal shareholders by offering them the chance to purchase new shares at a discounted price.