Rights, Subscriptions, and Share Allocation

Rights, Subscriptions, and Share Allocation explains how an entitlement or offer becomes a completed share issuance. It separates the holder’s right to apply, the price and cash required, the number requested, the final allotment, and the ownership effect after new shares are issued.

This section sits within Issuance and Funding. Use it when a financing gives existing shareholders priority or when an offering relies on subscription applications rather than immediate secondary-market purchases.

Two Connected Branches

The Transaction Sequence

1. The issuer announces or documents the security, eligibility, ratio, price method, and timetable.
2. Eligible investors receive rights or submit subscription applications.
3. Subscribers provide instructions, representations, and funds as required.
4. The subscription agent validates applications and calculates basic entitlements.
5. Excess requests are allocated from shares left after basic subscriptions.
6. Underwriters, backstop investors, or a rump process address remaining shares if the structure provides them.
7. The issuer allots and delivers securities, refunds excess funds, and reports final proceeds.

The Core Calculations

For a 1-for-4 rights issue with 100 million existing shares at a $12 cum-rights price and an $8 subscription price:

• New shares offered: 100 million / 4 = 25 million
• Maximum gross proceeds: 25 million x $8 = $200 million
• Post-issue shares: 100 million + 25 million = 125 million
• Theoretical ex-rights price: [(4 x $12) + (1 x $8)] / 5 = $11.20

A holder of 400 shares can subscribe for 100 new shares by paying $800. Full proportional exercise preserves the holder’s percentage ownership in this simplified model. A non-participant may be diluted and, if the entitlement is non-transferable, may be unable to sell it.

What to Verify

• Preliminary, formula-based, and final subscription prices.
• Record date, entitlement ratio, exercise or application deadline, and settlement date.
• Transferability, eligibility, subscription agreement, and investor representations.
• Basic request, oversubscription, proration, fractions, and refund procedures.
• Underwriting, backstop, minimum proceeds, and termination conditions.
• Gross and net proceeds, new shares, ownership, control, and use of proceeds.

Do not assume that a submitted subscription is accepted, that an indicated price is final, or that a discounted offer creates free value. These pages are educational and not securities, legal, tax, accounting, or investment advice.

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