Stock rights definition
/What are Stock Rights?
Stock rights give their owner the right, but not the obligation, to buy the shares of a company at a specific exercise price for a designated period of time. The term primarily applies to giving current shareholders the right to buy additional shares as part of the issuer's next stock sale. The intent is to give existing shareholders the ability to maintain their current proportion of ownership in the business by acquiring the same proportion of the new issuance. This is a particular concern in closely-held organizations, where some shareholders want to maintain their control over the entity.
Stock Rights Best Practices
Stock rights may be issued at an exercise price somewhat below the current market price, with no commission charge. By doing so, the issuer makes the shares more enticing to investors. This is also an advantage for the issuer, since it retains its existing shareholders through several rounds of stock issuances, rather than having to deal with new investors.