NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market
Anita Rao asks why a company issues a rights issue rather than a public issue. Which describes a rights issue correctly?
A rights issue is an offer of new shares by a company to its existing shareholders in proportion to the shares they already hold, giving them the first opportunity to subscribe before the shares are offered to others.
- AShares are offered to existing shareholders in proportion to their holdingsCorrect
- BShares are offered only to foreign investors
- CShares are offered only to mutual funds
- DShares are transferred from promoters to the public without new capital
Explanation
A rights issue offers new shares to existing shareholders in proportion to their existing holdings, usually at a price set by the company. The other options describe different offers.
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