What are Stock Rights?

Answer:
Stock rights are rights extended to current

stockholders to purchase new stocks – sometimes at a discount. This privilege gives the current stockholders first dibs to purchase shares in a new offering. By being able to exercise stock rights, the stockholders can maintain their proportionate interest in the company.

For example, if you own 5% of a company’s shares and the company will be releasing 10,000 additional shares, you might receive a stock rights offer that allows you to purchase 5% or 500 shares of the new issue before the initial offering.

This stock right usually allows you to purchase the shares at a lower price than the public offering price for a short period of time. The subscription price or exercise price of the stock is usually lower than what it will be at the public offering.

If you don’t exercise your stock rights, you will no longer have a proportionate ownership interest in the company. If you do exercise your stock rights, you will have maintained the level of ownership as before and likely have gotten a bargain as well.