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Hello tutor,
I could not understand what is the difference between preemption issue and rights issue of shares.A pre-emption entitlement applies when a company is trying to raise money from, basically, any source so is ready to invite anyone and everyone to subscribe for new shares
But existing shareholders may say “Hang on on a minute – surely I should be allowed to maintain my percentage holding” so that shareholder / those shareholders have the pre-emptive right to take up their respective proportion of shares as and when the company invites others to buy shares
A rights issue is an invitation ONLY to the existing shareholders and is not available for the general public to take advantage
It may be that an existing shareholder decides not to exercise their rights and, instead, decides to sell their rights on the open market. Then the general public is able to buy in to those rights issue shares that have been waived by the existing shareholder(s) but that’s incidental and only results from an existing holder deciding not to exercise their rights
OK?
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