What is a Right Issue?

What is a Right Issue?

A rights issue entails inviting existing shareholders to acquire additional new shares in the company. In this type of offering, shareholders are granted tradable rights, enabling them to purchase new shares at a discounted rate compared to the prevailing market price on a predetermined future date. This initiative allows shareholders the opportunity to expand their stake in the company at a favourable price.

Types of Rights Issues-

  1. Fully Paid- In this variant, the rights payment is completed in a single instalment.
  2. Partially Paid- Here, the rights payment is distributed over multiple instalments.
Objective- 

The primary aim of a rights issue is to secure extra capital for the company without inflating its debt-to-equity ratio. This capital infusion aids in fulfilling the company's immediate financial obligations. Companies resort to rights issues for various purposes, such as repaying debts, establishing new manufacturing units or facilities, or undertaking other expansion endeavours.

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