Accountancy Forum

what is meant by value of "Right"?...can somebuddy explain?

Ace

When listed companies raise their share capital after first issue of shares, such shares are first offered to existing shareholders. Such issue is known as right issue

Thanks Augustus...but my question was...What is the value of Right?

Ace

Hi...I got the answer...the value of right means...the additional value that ur paying for a right share...

Ace

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what is meant by value of "Right"?...can somebuddy explain?

Ace
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Right say yaad aaya, Once an Indian Lawyer quoted (I m forgetting his name), with which i am 100% agreed
"India and Pakistan are the only countries in the world, where you have to 'PAY' for your rights" <img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle>

SMR

and now all the companies are following Pk and Indian traditions i.e their existing shareholders have to pay for aquiring their "rights"...

Ace

Hi dear all aslaam o alaikum !
Yes i got it basically when u r talking about RIGHT ISSUE . Means According to Companies ACt 1985 Section 19 Whenever Company will issue new shares the existing shares holder has a absoutely right to purchase them . it by law . so thats the right issue simple existing shareholders have a right to purchase newly share of same co.

Right issue always normally issued to xstng shareholders on lower prices after attaining the right of issue the price per share will be fell down. as i am mentioning the example
suppose a building has 2 owners if 3rd comes then investment will increase but the profit margin will decrease .
At last shares are issue to raise fund to accumulate finance but note it down clearly after obtaining right issue the EPS will fall.
As well a share holder can also sell the right issue to the third party.
He has also the option to sell the half of the right to party and can remain half with him

I think this will be enough]
Bye bye
Regards !
Abdul Samad <font color="red"></font id="red">


www.geocities.com/samadsh

I think;
Right issue are shares issued to the existing share holders in proportion to shares already held by them. Purpose maybe
* To keep the power in hands of existing share holders
* Easy and cheap process
* As they are offered lower then market price (usualy), it's a lot of bnefit to members
* As difference between market price and offered price is cosidered as bonus, it is equilient to decrease the extra profits/reserves held by the company

(Please if something is wrong, let me know)

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Value of Right
I read your topic a few days back and since then I tried to solve it (I my self didn’t know about its answer). Before this topic you have posted a topic of “Right issue… Entries”. Your answer is in those entries. If you don’t have visited please read it first.

Before answering you I would like to ask you a question.
How much rights are issued to shareholders is decided in AGM i.e. 2 rights for 1 held share held before. Rights are issued according to this ratio to all share holders. Suppose you are a shareholder and your company has decided to issue Rights and you will receive 5000 rights of 10 each. The problem is that you don’t have enough money to buy them. What will you do?

```*``` I love stars;
*`*`*`* Shining;
`*`*`*` and Smiling;
*`````* Always.
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Hi Shahid,
I have studied "Rights issue" from Pakistani Author's books and the foreign one also...there is a great difference in the accounting entries as i have mentioned in my post "See the entires..."
In my opnion this is the correct entry(the foreign one)
DrCash
Crshare Capital
Crshare premium

Regarding ur query...
If the existing shareholders dont want to exercise their rights i.e, if they dont want to have additional shares then they can surrender their rights...and the company then can issue these shares to new share holders...

Ace

You are right about the difference, it creates confusion. I think the difference is due to law. Every country has its own law of companies which effects very much to the methods of issuing the shares. I will continue my study in right issue and I will consult with some other books.
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The decisions in the AGM are made by the directors and can't be changed. If it is decided that "5 rights will be issued to each shareholders having 10 shares before" then rights can't be given to any other person.
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- Suppose your company has transferred 100 rights (10 each) to you and now you have to pay 1000 to the company (U are now a debtor and remember that you have the rights not shares, shares will be transferred to you when you'll pay the money)
- If u don't have any money to pay (or u don’t want to have shares) then you'll go to the stock exchange and sell your right to any other person.
- Now you have the money to pay off the debt. You'll pay the amount and the shares will be issue to the person who has the rights.
- Shares will always be issued to the person who have the right.
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```*``` I love stars;
*`*`*`* Shining;
`*`*`*` and Smiling;
*`````* Always.
http//www.shahid-fss.tk