A rights offering is a notification by a company to its shareholders, giving them the right to buy more shares. The amount of additional shares that each shareholder is able to purchase is in proportion to their existing share holdings. Each of these rights has a termination date. Other features that may be added to a rights offering are:
- Shares can be purchased at a discount to the market price
- The rights can be transferred to a third party
A rights offering is usually issued by a closely-held company. In this situation, shareholders are more likely to want to maintain their existing proportion of total shares outstanding, in order to maintain their ownership percentage in the business. However, there is no obligation for them to do so.