Entitlement Offer

By
Marshall Hargrave
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Marshall Hargrave is a stock analyst and writer with 10+ years of experience covering stocks and markets, as well as analyzing and valuing companies.
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Updated November 30, 2021
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Khadija Khartit
Khadija Khartit
Reviewed by Khadija Khartit
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Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.
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Katharine Beer
Katharine Beer
Fact checked by Katharine Beer
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Katharine Beer is a writer, editor, and archivist based in New York. She has a broad range of experience in research and writing, having covered subjects as diverse as the history of New York City's community gardens and Beyonce's 2018 Coachella performance.
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What Is an Entitlement Offer?

An entitlement offer is an offer to purchase a security or other asset that cannot be transferred to another party. An entitlement offer is offered at a specific price and must be used during a set timeframe. Failing to use the entitlement offer will lead to its withdrawal. An entitlement offer is also known as an open offer or a non-transferable offer.

Key Takeaways

  • An entitlement offer allows the purchase of an asset or security at a certain price but is non-transferrable.
  • The offer is valid for a set timeframe and in some cases can be accelerated, where the time to accept the offer is reduced.
  • A company cannot transfer who the entitlement offer was made for. If an entitlement offer fails, a company may choose to shift the sale to the general public.

How an Entitlement Offer Works

Entitlement offers are most commonly associated with the issuance of new shares of stock by a company. A company looking to raise new capital can offer existing shareholders a deal—such as the ability to purchase a given amount of new shares at a set price over a specific time period. Unlike with a rights offer, the existing shareholder cannot transfer the entitlement offer to anyone else.

Limiting who can use the entitlement offer increases the complexities associated with a transaction. From the onset, the company issuing the offer may have to match the type of new shares the offer is providing with the type of shares the shareholder already has. If the investor chooses not to purchase the new shares then the company also cannot transfer the offer to another shareholder.

One option that the company has in the case of a declined entitlement offer is to shift the sale of the new shares to the general public, although this would mean that the price it would fetch may not be the same as with the entitlement offer, and may in fact increase the cost of issuing shares.

An open offer is specifically related to a share offering, while an entitlement offer is not limited to securities.

Special Considerations

The entitlement offer’s limited timeframe is usually long enough to provide the existing shareholder with enough time to examine whether the offer is in his or her best interest. In some cases, existing shareholders with large holdings are given a larger share of the new issues. In order to entice larger or institutional shareholders, the issuing company may issue an accelerated entitlement offer, meaning that the amount of time that a shareholder has to decide is reduced.