What a rights offering gives existing shareholders

A shareholder receives one right for each share already held. The notice says those rights can be used to buy additional shares. The right creates a choice under the offer’s terms. To work out what it permits, read the record date, the number of rights needed for a new share and the subscription price.

Find out what one right buys

A RiverNorth Capital and Income Fund prospectus supplement in 2024 offered one right per existing common share held on its record date. The basic subscription required three rights to buy one common share. A holder with 300 rights could therefore use the basic subscription for 100 shares, subject to the offer terms. The offer described the rights as nontransferable.

An offering can handle transfer differently. A September 2024 announcement from Seaport Entertainment Group filed on EDGAR described its rights as transferable. It gave holders one right per existing share on the record date and set a subscription price of $25 per new share. A reader comparing the offers should check both the number of shares each right can buy and whether the holder can transfer it.

See how ownership percentages can change

Imagine a fictional company has 1,000 shares. A holder owns 100, or 10%. If the company issues 200 new shares and that holder buys none, the 100 shares still belong to the holder. They now represent about 8.33% of 1,200 outstanding shares. This example assumes all 200 new shares are issued. The count of shares owned and the fraction of the business represented by those shares answer different questions.

Some offers let participants ask for additional shares if other rights go unused. Read how any extra allotment is limited and what happens to amounts paid for shares that are unavailable. The subscription price is the price to exercise under the offer, while a market quote can move independently.

Read the deadline and the choices

• Find the record date and confirm which shares qualify.
• Work out how many new shares your rights would cover under the stated ratio.
• Check the subscription price, expiration and whether transfer is permitted.

Use the filed prospectus and subsequent amendments for a real offer. The rights notice, the market price and the number of shares actually issued are separate pieces of information.