- A company announces a Rights Issue to invite existing shareholders to buy more shares usually at a discounted price. These shares are known as Rights Shares. It is issued on a pre-determined date called the record date
- After the Rights Issue is announced, the company then credits its existing shareholders’ Demat Accounts with REs (Rights Entitlements). Rights entitlements are offered to shareholders as a ratio to the number of securities held on this record date.
- These REs are not the Right Shares but the benefit given to existing shareholders to apply for the Right Shares. If shareholders do not wish to apply for these Rights Shares, they can even trade these REs in the market until a particular allowed trading date, it is just selling your stocks from your holdings.
- A shareholder may refuse to subscribe to the rights issue and just let the 'right' lapse. Alternatively, the shareholder can renounce/trade the entitlement in favor of another person for a price.
Related article
How do I apply for a Rights Issue?