WAEC SSCE - Commerce - 1995 (Objective)

Question 1 Report

When a company sells shares to existing shareholders at preferential rate, that is called?

Rights issue

Bonus issue

Private placing

Sale by auction

lssue by prospectus

Answer Details

When a company sells shares to its existing shareholders at a preferential rate, it is called a "Rights issue." A rights issue is a way for companies to raise additional capital from their existing shareholders. It is called a "rights" issue because existing shareholders have the right to purchase additional shares at a discounted price before the shares are offered to the public. This can be a cost-effective way for companies to raise capital as it avoids the fees associated with a public offering. To participate in a rights issue, existing shareholders are typically given a specific number of rights for each share they already own. These rights allow them to purchase a certain number of new shares at a discounted price. Shareholders who do not wish to purchase additional shares can sell their rights on the open market to other investors. In summary, a rights issue is a way for companies to raise additional capital from their existing shareholders by offering them the right to purchase new shares at a discounted price before they are offered to the public.






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