Loading the player...

What is a 'Rights Offering (Issue)'

A rights offering (issue) is an issue of rights to a company's existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period. In a rights offering, the subscription price at which each share may be purchased is generally at a discount to the current market price. Rights are often transferable, allowing the holder to sell them on the open market.

BREAKING DOWN 'Rights Offering (Issue)'

In a rights offering a company offers to sell shares to existing stockholders. Each shareholder receives one right for each share it owns. This is a right, and not an obligation and a shareholder can choose to exercise this right by purchasing shares by the date listed on the stock purchase right, they can do nothing, or they can sell their rights to another person.


Companies generally offer rights when they need to raise money. They may need to raise money for a variety of reasons, for example to pay off debt, purchase equipment or acquire another company. The benefit to a company of raising money through a rights offering is that the company can bypass underwriting fees. In some cases, a company may use a rights offering to raise money if there are no other viable financing alternatives. This is common during economic slowdowns when banks become reluctant to lend to companies. The benefit of a rights offering to shareholders is that shares are generally offered at a discount. Sometimes this discount can be quite steep, it all depends on how much a company feels it needs to encourage its shareholders to participate in the rights offering.


A rights offering by a big, established company may be taken by the market as evidence that a company is struggling. This is because rights offerings flood the market with more shares, diluting the value of the available shares. Shareholders can become disgruntled when their shares are diluted. But, a rights offering is meant to calm this concern because only existing shareholders are given the opportunity to buy additional shares. This is unless of course, shareholders decide to sell these rights.


A company whose stock is trading at $25 apiece may offer its shareholders the right for each share held to purchase an additional share at the price of $20 apiece. Along with the rights offering the company will specify the expiration date. The expiration date is generally one to three months from the date that the rights offering is announced.

  1. Open Offer

    An open offer is a secondary market offering, similar to a rights ...
  2. Rights

    Rights give stockholders entitlement to purchase new shares issued ...
  3. Oversubscription Privilege

    A privilege provided to existing shareholders in a company when ...
  4. Entitlement Offer

    An entitlement offer is an offer to purchase a security or other ...
  5. Common Shareholder

    The rights of common shareholders give them the ability to influence ...
  6. Ex-Rights

    Ex-rights are stock shares that are trading but without rights ...
Related Articles
  1. Investing

    Investing In Stock Rights And Warrants

    Learn why many companies choose to issue rights or warrants as an alternative means of generating capital and how their value is determined.
  2. Investing

    Why Do Companies Care About Their Stock Prices?

    Find out how a company's stock price reflects its value to internal and external shareholders.
  3. Investing

    Adjusting Price Charts To Secondary Offerings

    Secondary offerings may require rapid readjustment of trading strategies.
  4. Managing Wealth

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  5. Small Business

    Whom Should Corporations Please?

    Companies balance the interests of owners, customers and employees. Find out who comes out on top.
  6. Investing

    Shareholders: Vote Your Proxy and Be Heard

    Voting shares, in person or via proxy ballot, is a right every shareholder should exercise. Here's why.
  7. Trading

    Stock Futures vs. Stock Options

    A quick overview of how stock futures and stock options work and why you would pick one over the other depending on the strategy being used.
  8. Financial Advisor

    Advising FAs: How To Explaining Stocks to a Client

    Without a doubt, common stocks are one of the greatest tools ever invented for building wealth.
  9. Small Business

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  10. Investing

    What's the Role of an Investment Bank?

    Investment banks provide financial advice to businesses and governments and help them raise capital through the sale of stocks, bonds and other products.
  1. What can shareholders vote on?

    Understand the usual voting rights of common stock shareholders, along with the importance of shareholders exercising their ... Read Answer >>
  2. What are the advantages of ordinary shares?

    Dividends and ownership rights are two advantages of investing in ordinary shares. Read Answer >>
  3. What is the difference between share purchase rights and options?

    Discover the difference between share purchase rights and options, which are essential to understand when deciding to invest ... Read Answer >>
  4. Can anyone own common stock in a company?

    Understand who can purchase common stock as well as the key characteristics that differentiate common stock from preferred ... Read Answer >>
  5. How does privatization affect a company's shareholders?

    The most recognized transition between the private and public markets is an initial public offering (IPO). Through an IPO, ... Read Answer >>
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center