A Peep into the Concept of Rights Issue – Adedayo E. Salami

Rights Issue - Adedayo SAlami

A rights issue is an issue of rights to buy additional securities in a company made to the company’s existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a way to raise capital under a seasoned equity offering. Rights issues are sometimes carried out as a shelf offering. With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the firm at a specified price within a specified time. In a public company, a rights issue is a form of public offering (different from most other types of public offering, where shares are issued to the general public).

Rights issues may be particularly useful for closed-end companies, which cannot retain earnings, because they distribute essentially all of their realized income and capital gains each year; therefore, they raise additional capital through rights offerings. As equity issues are generally preferable to debt issues from  company’s viewpoint, companies usually opt for a rights issue when they have problems raising equity capital from the general public and choose to ask their existing shareholders to buy more shares.


1 The original rights circular and any certified transfer form shall be filed with the Securities and Exchange Commission for registration. Rule 326 of the SEC Rules 2013

2  The issuer shall ensure that existing shareholders receive a copy of the rights circular or become aware of the offer not less than 21 Days before the opening of the offer. Rule 330 of the SEC Rules 2013

3 A Rights Circular approved and registered by commission shall be sent to every shareholder which shall contain inter alia:

i The rights price

ii The period for which the rights will be tradable on the securities exchanges. Rule 330 of SEC Rules 2013

4 Notice of rights shall as well be published in at least 2 national daily newspapers. Rule 324 of SEC Rules 2013

5 The next business day following the final date of the rights the period as stated in the right circular the SEC shall delist the rights


I  The shareholders shall pass a special resolution that in the event of an under-subscription, their pre-emptive rights be waived.

Pre-Emptive Rights mean a privilege extended to the shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering. It is usually contained in article of association of the company.

II  The underwriter then, take up any unsubscribed shares.

For further inquiries please contact Enitan on 07060934323; salamiadedayoe@yahoo

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