Subscription Right

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DEFINITION of 'Subscription Right'

The right of existing shareholders in a company to retain an equal percentage ownership over time by subscribing to new stock issuances at or below market prices. The subscription right is usually enforced by the use of rights offerings, which allow shareholders to exchange rights for shares of common stock at a price generally below what the stock is currently trading for.

Also known as the "subscription privilege" or "preemptive right" of the shareholder.

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BREAKING DOWN 'Subscription Right'

Subscription rights are not necessarily guaranteed by all companies, but most have some form of dilution protection in their charters. If granted this privilege, shareholders may purchase their shares before they are offered to the secondary markets. This form of dilution protection is usually good for a few weeks before a company will go about seeking new investors in the broad market.

Investors will receive notification of their subscription right by mail (from the company itself) or through their brokers or custodians.

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