Question
Which of the following statement(s) is/are correct?(Select the correct answer from the options below the statements) (1) Rights issue is normally granted to existing shareholders only (2) Rights issue is normally granted to new and existing shareholders (3) Rights issue is normally granted to new investors only (1) only (1) and (2) (1) and (3) (1), (2) and (3)
Answer
4.3
(364 Votes)
Rosamund
Elite · Tutor for 8 years
Answer
The correct answer is '(1) only’.
Explanation
## Step 1:The first step is to understand what the term "Rights Issue" means. Rights issue refers to a company's invitation to existing shareholders to purchase additional new shares from the company, often at a discounted price compared to market prices.## Step 2:The second step is to compare this definition with the options given. We have:### (1) Rights issue is normally granted to existing shareholders only, which is correct according to the definition.### (2) Rights issue is normally granted to new and existing shareholders, this statement is only partially correct. A rights issue does sometimes allow new investors to become shareholders via over-allotment or excess application. However, the fundamental premise of a rights issue is an offer made to existing shareholders. The primary objective is not to seek new investors, making this statement partly incorrect.### (3) Rights issue is normally granted to new investors only, which contradicts the definition and therefore, this statement is false.Only the first statement "Rights issue is normally granted to existing shareholders only" appears entirely correct with applicability for all cases drawn from the definition of Rights Issue.