Rights Issue
A rights issue is a company asking existing shareholders if they want to buy more shares, usually in proportion to what they already hold.
Start the lessonIntroduction
An opportunity to buy additional shares
A rights issue is a company's way of raising fresh capital from existing shareholders. It usually follows a simple ratio, such as 1 new share for every 4 shares already held. The company sets the subscription price, deadlines, and other rules in the offer documents.
The short answer
Eligible shareholders may apply for the offered shares by paying the stated subscription price. A rights issue is not free shares, and applying is generally a choice rather than an obligation.
₹80 example
Estimate your rights entitlement
With 20 shares and a 1-for-4 offer, an eligible holder may apply for 5 new shares. At ₹80 each, the illustrative subscription amount is ₹400.
Illustrative entitlement
5 shares
20 × 1 offered shares ÷ 4 existing shares
Subscription amount if you apply for this entitlement: ₹400
This is a simplified estimate, not an application or an offer to invest. Actual entitlement, permitted application amount, payment schedule, and fractional treatment depend on the official offer terms.
What can shareholders do?
Review the choices in the offer documents
The available actions depend on the company's terms and applicable rules.
Apply
Apply for some or all of the entitlement, subject to the offer terms and payment deadlines.
Do not apply
A shareholder may choose not to subscribe. The treatment of an unused entitlement depends on the offer structure.
Transfer or renounce
Some offers allow rights entitlements to be renounced or transferred within a stated period; this is not available on identical terms in every offer.
What to keep in mind
Check the terms before deciding
- A rights issue is an offer to existing shareholders, not a free bonus share distribution.
- The subscription price may differ from the market price, which can change before, during, or after the offer.
- Applying requires funds and involves investment risk; subscribing does not guarantee a profit.
- Eligibility, ratio, payment schedule, application process, and deadlines are set out in official offer documents.
- If entitlements can be traded or renounced, check the permitted method and deadline rather than assuming they can be transferred.
Key points
What to remember
- A rights issue can help a company raise money by offering new shares.
- Eligible existing shareholders usually receive an offer in a stated proportion.
- New shares require payment at the announced subscription price.
- Applying is generally optional; review the offer terms and deadlines.
- Some offers may permit renouncing or transferring entitlements.
- Neither participation nor a rights issue guarantees investment returns.
This lesson is for education only, not personalized financial, tax, or investment advice. Investments in securities are subject to market risks.
Test yourself
5-question quiz
Choose one answer for each question, then check your score.