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Simple English definitions for legal terms
subscription right
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A quick definition of subscription right:
A subscription right is a certificate that shows a shareholder's right to buy new stock before it is offered to the public. This is called a preemptive right. It is important because it allows the shareholder to buy stock at a good price. Subscription rights can be traded because they have value. The shareholder must use this right within a certain time period, usually 30 to 60 days. This helps prevent the shareholder's ownership from being diluted.
A more thorough explanation:
A subscription right is a certificate that shows a shareholder's right to buy newly issued stock before it is offered to the public. This right is also known as a preemptive right. It is given to shareholders to prevent dilution of their ownership interest.
For example, if a company decides to issue new shares, it must first offer them to its existing shareholders. This gives them the opportunity to maintain their ownership percentage in the company by buying more shares. If they choose not to exercise their subscription right, the new shares can then be offered to the public.
Subscription rights have a market value and can be traded because they allow the holder to purchase stock at a favorable price. The right must be exercised within a fixed period, usually 30 to 60 days.
Overall, subscription rights are a way for companies to raise capital while also protecting the ownership interests of their existing shareholders.