Question

Explain the following term/concept:

Rights Issues

Answer 1

1. A business can issue shares to its current equity owners in proportion to their current shareholding when it wishes to obtain more funds. This type of share issuance is known as a rights issue.
2. Rights shares are offered to existing shareholders at a price lower than the current market value. If a shareholder does not respond within the given time period, it is considered that they are not interested in the offer. In such a case, the company is free to sell those unclaimed shares to new investors.