Companies can raise money in a few ways. They can borrow from the bank or raise money from existing shareholders through rights issues. They can also issue other debt securities like corporate bonds, warrants etc.
When a company issue rights, the announcement will be something like this, “1 rights share for every 2 ordinary shares at $1″. This means that every shareholder will be entitled 1 rights share for every 2 shares that they owned. The shareholder can choose to subscribe to the rights and pay $1 for each share. At the end of the rights issue, the company will use the proceeds to fund the activity that she has promised to do.
As one of my stocks (Blumont) was involved in a Rights Issue recently, I find it easier to explain the procedure using this example.
