Definition (1):
Right shares are those shares which are issued by a corporation in ratio of equity shares to existing shareholders to raise capital for corporation.
Definition (2):
According to Weston and Brighhem, "a right is an option to buy a security at a specified price during a designated period.”
Definition (3):
According to section 81 of Indian company act 1956, “Company can issue right shares only after the two years of creation of company or one year of first issue of shares whichever is earlier."
When a listed company proposes for issuing fresh securities to its current shareholders on a record date, is called the right issue. Normally, the rights are offered in a specific ratio to the securities’ number held before the issue. The company is legally obliged to offer first the shares’ further issue to its current shareholders. Yet the shareholders have the choice either to renounce it or reject it or accept it. For this reason, it is known as the “Right Issue”.
Use of the Term in Sentence:
- Issuing the right shares increase the company’s goodwill in the existing shareholders’ eyes.