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Wednesday, September 2, 2015

What Is A Right Issue

Companies resort to Right Issue is a means of raising finance by issuing additional shares to the existing shareholders of the company. Under a right issue, new shares are often issued at a discount to the current market price of such shares and the 'existing' shareholders of the company are given a 'right' to subscribe to such shares.

Companies in need of a fresh inflow of funds to finance their growth/restructuring plans often resort to right issue as a means of raising capital without bringing about a significant dilution of the existing shareholding pattern of a company.

It is important to note that the rights offered to the existing shareholders are transferable. An existing shareholder having a 'right' to subscribe to a given number of shares in the company (in a rights issue) may transfer such right (with or without any fee) to any other person (whether or not an existing shareholder of the company).

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