rights issue

rights issue
an issuing of extra shares. A company may raise additional capital from its members as opposed to from the public at large by issuing extra shares; this is called a rights issue. See pre-emption; pre-emption clause.

Collins dictionary of law. . 2001.


rights issue
An offer of new shares or other securities made to existing shareholders in proportion to their shareholdings. A rights issue is usually to be subscribed in cash (nearly always at a discount to the market price). In the case of publicly-quoted companies a rights issue is normally made by means of the issue of a renounceable letter (or other negotiable document) such as a provisional allotment letter (PAL). PALs give shareholders the right to subscribe for shares under the issue and they can sell this right in the market nil paid.
Arrangements are normally made through underwriters for the sale of shares not taken up by shareholders. In the first instance underwriters will attempt to sell the rights not taken up through the market. Any that remain unsold will be taken up by the underwriters. So even if a shareholder does nothing (known as a lazy shareholder), he may still receive a cash payment if the shares that were provisionally allotted to him are sold in the market for more than their subscription price.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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  • rights issue — subscription rights / rights offer Privilege granted to existing shareholders of a company to subscribe to shares of a new issue against payment. Rights are often tradable in the secondary market …   Euroclear glossary

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