The issue of shares which allows existing shareholders to buy shares at a preferential price is?
Answer Details
The issue of shares that allows existing shareholders to buy additional shares at a special price is called a "rights issue". This means that the company offers its current shareholders the right to purchase new shares at a discount, typically for a limited time period.
For example, a company might announce a rights issue of 1 for every 10 shares held, meaning that for every 10 shares owned, a shareholder has the right to buy 1 additional share at a discounted price. The discounted price is usually lower than the market price at the time of the offer, which gives existing shareholders an incentive to take up the offer.
The purpose of a rights issue is to raise capital for the company and give existing shareholders the opportunity to maintain their proportionate ownership in the company without dilution. It also allows the company to avoid the cost of underwriting and listing the shares on the stock exchange, which can be expensive.
Overall, a rights issue is a way for a company to raise capital while providing an opportunity for its current shareholders to participate in the offering on favorable terms.