Subscription Right

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What is Subscription Right?

A Subscription Right is the privilege, described in the corporate charter, granted to existing shareholders of a company to subscribe to newly issued common stock before it is offered to the general public. Often it has a limited lifespan of 2 to 4 weeks and is freely transferable. Often they entitle the holder also to buy the new stock below the public offering price. Because these rights usually allow the stockholder to buy below the current market price, they ordinarily have a value of their own and are actively traded.

This facility should be seen as a protection mechanism against the effects of dilution. Normally, but not necessarily, one existing share entitles the holder to buy one new issued share. If not the subscription ratio gives insight in the number of existing shares needed to buy a new share.

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Compare with: Warrant  |  Corporate Bond  |  Anti Hostile Takeover Mechanisms  |  Treasury Stock  |  Unissued Stock

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