Oversubscription Privilege

AAA

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).

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Warrant

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

    A security giving stockholders entitlement to purchase new shares ...
  3. Rights Offering (Issue)

    An issue of rights to a company's existing shareholders that ...
  4. Secondary Offering

    1. The issuance of new stock for public sale from a company that ...
  5. Share Purchase Rights

    A type of security that gives the holder the option, but not ...
  6. Backstop Purchaser

    An entity that agrees to purchase all the remaining, unsubscribed ...
Related Articles
  1. A Look At Primary And Secondary Markets
    Investing Basics

    A Look At Primary And Secondary Markets

  2. Warrants: A High-Return Investment Tool
    Options & Futures

    Warrants: A High-Return Investment Tool

  3. Understanding Rights Issues
    Options & Futures

    Understanding Rights Issues

  4. I own some stock warrants. How do I ...
    Options & Futures

    I own some stock warrants. How do I ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center