What is a "Right Share" ? For what purpose Right Shares are issued by a Company?

Cash-strapped companies can turn to rights issues to raise money when they really need it. In these rights offerings, companies grant shareholders a chance to buy new shares at a discount to the current trading price

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called "rights", which, well, give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.

But until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares' value.

 

Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheets use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.

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Priority Right: arises in the case of whether the company is in the process of liquidation of its business (for whatever reason) in which case the value derived from the sale of the company's assets are used to pay the obligations to creditors (ie, lenders company) first and then the bondholders and if the remaining liquid to give shareholders and therefore Valdaúnin them in preference to the shareholders of the company in the event of liquidation of the company.

Right share are those share which are issued by the company for their existing shareholder .This can be issued only after the two year of the formation of the company and it is issued in the ratio of equity share but not the preference shareholder .