What is a subscription price?
It’s the price at which existing shareholders can buy additional shares of company stock in a rights offering before they go on sale to the general public. The subscription price is fixed and usually set at less than the market price to encourage a successful sale of the new shares.
Key takeaways
Subscription price is the fixed price at which existing shareholders can buy additional company shares in a rights offering before public sale, typically set below market price to encourage successful sales.
Companies usually issue subscription shares to raise capital for expansion, but it could also signal a lack of demand for shares in the open market.
Current shareholders are not obligated to buy new shares but can purchase them to maintain their existing ownership proportion in the company if they choose.
Oversubscription privilege, often issued alongside subscription price, allows existing shareholders to buy more shares than needed to match their current investment percentage, typically when other shareholders don't exercise their options.
Where have you heard about subscription prices?
Subscription shares are usually issued by companies if they need to raise capital to expand, but could also indicate a lack of demand for shares in the open market.
What you need to know about subscription prices.
Current shareholders are under no obligation to buy the new shares, but they do have the opportunity to maintain their existing proportion of the available shares if they wish.
In many instances, the subscription price is issued along with what is known as the oversubscription privilege. This enables existing shareholders to buy more than the amount of shares needed to match their current percentage of investment in the business. This type of privilege is only normally initiated when a number of existing shareholders choose not to exercise their option to buy extra shares.