Where have you heard about subscription rights?

What are subscription rights?

Subscription rights are agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate number of shares of any future issue of the security.

You may have heard of such events in the media, such as when RBS creating a rights issue at the height of the financial crisis, or even when your financial adviser has contacted you to explain this opportunity with one of your investments.

What you need to know about subscription rights.

Shareholders are not obligated to buy any additional stock in a rights issue. They can choose to buy the stock by the specified expiration date, or they can choose to do nothing at all.

The benefit to stakeholders is that they can normally buy the additional shares for less than their market value. Plus, if they want, they can normally then sell the stock on the open market, usually at a profit.

On the other hand, if they do decide to sell – or if they do nothing at all they will end up with a smaller percentage stake in the business because the value of their existing shares has been diluted.

Find out more about subscription rights.

Find out more about rights issues, why businesses use them and how they affect shareholders and the value of a company's shares.