Knowing Your Subscription Right

The subscription right of a stock is vital to many investors. Here are the basics of subscription right and what it means to you as an individual investor.

Subscription Right

The term subscription right basically means that you will have the first chance to purchase new shares of stock that are offered into the market place if you are an existing shareholder. This is a protective measure that is designed to prevent the value of your shares in a stock from being diluted.

How It Works

Companies will regularly decide to issue new shares of stock in order to generate capital. However, if they did so without regard to the existing shareholders, this could potentially affect the value of their holdings. With the subscription right, the company will come to you and give you the first opportunity to buy the stock. This opportunity will usually last 1 to 2 weeks before it is given to the rest of the general public.

Each company handles subscription right differently. Therefore, whenever you purchase shares of a stock, you want to make sure that you understand your subscription rights with that particular company. Most companies will have some type of provision that protects your interests, but you want to make sure before getting involved.

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