Any company that wants to go public and raises capital can choose a right issue or public issue. Many times they opt for right issue followed by the public issue.
In a rights issue, the existing shareholders are given a right to invest on a specified number of new shares of the issuer company at a decided price within a specified time. Generally, the price is less than the market price as the main idea of the company is to reward the existing shareholders with a good investment opportunity.
Long-term investors can also purchase additional shares in right issue at a lower price than the current market price and hold on to the stocks.this right is not necessarily given all time especially when the company is not in the growth phase. In such cases, is not an important course of action. To understand the Right Issue, it is important to know about the below terms.