In corporate finance, a new share offering made first to existing shareholders is called a rights issue.
A rights issue gives current shareholders the right, usually for a limited period, to buy additional shares in proportion to their existing holdings. The shares are commonly offered at a subscription price below the prevailing market price, although the exact terms vary. Shareholders may typically exercise the right, sell it, or allow it to expire.
Companies use rights issues primarily to raise equity capital. The funds may support acquisitions, debt reduction, expansion, or working capital. Because more shares can be issued, shareholders who do not participate may see their ownership percentage diluted.
A rights issue differs from a bonus issue. In a bonus issue, qualifying shareholders receive additional shares without paying a subscription price, usually by capitalising reserves. It also differs from a stock split, which changes the number and nominal price of shares without raising new money.