Rights Offering

A rights offering gives existing shareholders the right to buy additional shares, usually at a discount to the current market price, in proportion to their existing ownership stake. Companies use rights offerings to raise capital while giving current shareholders first opportunity to maintain their percentage ownership.

Shareholders who do not participate in a rights offering get diluted, since new shares are issued to whoever does exercise their rights, which is why rights offerings sit in the same family of dilution concerns as a standard secondary offering, just structured to favor existing holders first.