If a corporation's charter has a preemptive rights clause, before the company offers a new issue of securities to the public, it must offer existing shareholders the opportunity to buy new shares of stock in proportion to the number they already own.
That obligation is known as a subscription right, or a rights offering, and allows you to maintain the same percentage of ownership you had before the new issue.
Usually you receive one right for every share you already own, although the number of rights you need to buy a share depends on the number of outstanding shares in relation to the number in the proposed new issue.
Rights are transferable, and may be traded on the secondary market. For example, if you don't wish to purchase additional shares, you may choose to sell your rights.
Or, if you need additional rights to make a purchase, you may buy them. Rights have expiration dates, so you typically must act promptly to take advantage of the offer.
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- Rights offering, Subscription price
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