What is a Right Entitlement?

Right Entitlement

A right is issued by a company to its shareholders on a pre-determined date known as the record date. Rights entitlements are offered in a specific ratio based on the number of securities held by shareholders on this date.

A shareholder may choose not to subscribe to the rights issue and allow the right to lapse. Alternatively, the shareholder can renounce or trade the entitlement in favour of another person for a price.

Additional Important Points

• Rights are usually offered at a discounted price compared to the current market price.
• Rights Entitlements (RE) are temporary securities and remain valid only for a limited period.
• REs are credited directly to the shareholder’s Demat account.
• They can be traded on the stock exchange just like shares (with a separate symbol like ABC-RE).
• If the shareholder does not use or sell the RE within the given time, it will expire and become worthless.
• Participating in the rights issue helps shareholders maintain their ownership percentage in the company.
• Ignoring the rights issue may lead to dilution of shareholding.
• The application for rights shares is usually done through ASBA (Application Supported by Blocked Amount).