Subscription Right

Subscription right

See: Subscription privilege

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Preemptive Right

In stock, the ability of a shareholder to maintain the same percentage of ownership in a company should the company issue more stock by subscribing to a proportional number of shares at or below the market price. This protects the investor from devaluation of his/her shares if the company decides to hold a round of financing. The purchase of this proportional number of shares usually takes place before the new issue is offered to the secondary market, and must be exercised before a certain date (known as the expiration date) if the shareholder is to maintain the same percentage of ownership. It is also called a subscription right. See also: Anti-dilution provision.

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subscription right

See right.

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Subscription right. 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.

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.