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LSDefine
Simple English definitions for legal terms
subscription privilege
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A quick definition of subscription privilege:
Subscription Privilege: A special right given to shareholders that allows them to buy new shares of a company before they are offered to the public. This helps prevent the shareholder's ownership from being diluted. The shareholder must exercise this right within a certain time period, usually 30 to 60 days. This is also known as a preemptive right or subscription right.
A more thorough explanation:
Subscription privilege is also known as preemptive right. It is a privilege given to shareholders to purchase newly issued stock before it is offered to the public. This privilege is given to prevent dilution of the shareholder's ownership interest. The shareholder can purchase the new shares in an amount proportionate to their current holdings. The right must be exercised within a fixed period, usually 30 to 60 days.
Suppose a company has 100,000 outstanding shares, and a shareholder owns 10,000 shares. The company decides to issue 10,000 new shares. The shareholder has the right to purchase 1,000 new shares (10% of the new shares) before they are offered to the public. If the shareholder exercises their subscription privilege, they will own 11,000 shares (10% of the total outstanding shares).
This example illustrates how subscription privilege works. The shareholder has the right to maintain their ownership percentage by purchasing new shares before they are offered to the public.