Oversubscription Privilege


DEFINITION of 'Oversubscription Privilege'

A privilege provided to existing shareholders in a company when the company issues a rights or warrants offering. This enables shareholders to "subscribe" to purchase extra shares that are not picked up by the remaining shareholders.

When a company issues a rights or warrants offering, existing shareholders are given the option to maintain their current percentage of ownership in the company by acquiring the rights to further shares. If any current shareholders decide to not accept all of the rights for which they are eligible, these extra rights/warrants become available to the rest of the shareholders at a predetermined ratio (ie. the right to purchase 0.25 shares for every existing share held).

BREAKING DOWN 'Oversubscription Privilege'

There will always be a maximum number of rights or warrants available on the whole, and should there be more oversubscription demand than supply available, whatever is left over will be allocated on a pro-rata basis to those who pick up their oversubscription privilege.

Companies that decide to issue a rights or warrants offering do so in lieu of a secondary stock offering, which would be available to other investors as well. While the goal of all three offerings is to raise capital for the issuer, if a company bypasses conducting a secondary stock offering, then it shows investor demand is not high enough for them to do so.

  1. Backstop Purchaser

    An entity that agrees to purchase all the remaining, unsubscribed ...
  2. Rights Offering

    An issue of rights to a company's existing shareholders that ...
  3. Share Purchase Rights

    A type of security that gives the holder the option, but not ...
  4. Warrant

    A derivative security that gives the holder the right to purchase ...
  5. Rights

    A security giving stockholders entitlement to purchase new shares ...
  6. Secondary Offering

    1. The issuance of new stock for public sale from a company that ...
Related Articles
  1. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  2. Options & Futures

    Warrants: A High-Return Investment Tool

    Discover the advantages of this largely unexploited investment vehicle.
  3. Options & Futures

    Understanding Rights Issues

    Not sure what to do if a company invites you to buy more shares at discount? Here are some of your options.
  4. Investing

    Is it Time to “Buy” Inflation?

    Based on recent data from the Treasury-Inflation Protected Securities (TIPS) market, it would seem that most investors aren’t worried about inflation.
  5. Investing Basics

    4 Reasons a Company Might Suspend Its Dividend

    Learn about the four most common reasons a company may choose to suspends its dividends, including financial trouble, funding growth and unexpected expenses.
  6. Fundamental Analysis

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  7. Economics

    What Do Central Counterparty Clearing Houses Do?

    A central counterparty clearing house facilitates trading in European derivatives and equities markets.
  8. Investing Basics

    What Does a Transfer Agent Do?

    Transfer agents maintain the records and documents related to shareholder accounts.
  9. Investing Basics

    What Is Schedule 13G Used For?

    Schedule 13G is an SEC form an investor must file upon taking ownership of 5% or more of a company’s outstanding shares.
  10. Taxes

    6 Reasons to Donate Your Car to Charity

    It's no longer a free ride, but there are still tax benefits to doing so.
  1. I own some stock warrants. How do I exercise them?

    Typically, stock warrants are derivative instruments added to new issues of stocks or bonds to make these issues more attractive. ... Read Full Answer >>
  2. Why should investors consider the fully diluted share amount?

    Investors should consider a company's fully diluted share amount before purchasing the company's stock, because it could ... Read Full Answer >>
  3. What's the difference between basic shares and fully diluted shares?

    Basic shares and fully diluted shares are different types of methods to measure the amount of shares investors hold in a ... Read Full Answer >>
  4. How do modern companies assess business risk?

    Before a business can assess or mitigate business risk, it must first identify probable or likely risks to its bottom line. ... Read Full Answer >>
  5. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>
  6. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!