Which of the following best defines a rights issue?

• A. An issue of new shares to existing shareholders in proportion to their holdings.
• B. An issue of new shares to all existing and new shareholders regardless of holdings.
• C. A sale of treasury shares on the market.
• D. An issue of shares to employees at a discount.

Answer: (A)

A rights issue is a way for a company to raise new capital by offering additional shares specifically to existing shareholders in proportion to what they already own. This lets current holders buy more shares to maintain or adjust their ownership percentage, often at a price discount to the market. The offer is not open to new investors on the same basis, and it isn’t about selling treasury shares or issuing shares to employees. The other options describe different actions—opening the issue to all investors, selling treasury shares on the market, or granting shares to employees—which are not rights issues.