Distribution to existing shareholders of rights to purchase additional shares as part of a primary offering. A company uses a rights offering when it raises capital by selling new shares to existing shareholders rather than to the entire investment community. The number of rights a shareholder receives is based on the number of shares the holder owns. Rights offerings are generally public offerings unless offered only to sophisticated investors or QIBs in a private placement.
Rights are a special type of option that have a short market life (usually no more than a few weeks). The right enables the shareholder to buy shares of the new issue at a specified price prior to sale publicly. Rights also have intrinsic value: they can be sold in the open market separate from the original stock.
An offering of securities made only to persons who are already owners of the company's securities. The name comes from the day when it was common for a company's charter to give current holders the first right to acquire new issues. That provision is rare today, but many corporations find they can raise all the capital they need by asking their existing shareowners if they would like to buy more.
Issuance of "rights" to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise issue additional common stock.