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Shares Made Simple: A beginner's guide to the stock market by Rodney Hobson

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Chapter 20: Rights Issues And Placings

I noted in chapter two that for the most part investors are buying shares on the secondary market: in other words, they are buying shares from other investors. There are occasions, however, where new shares are created and you need to know what action if any to take if a company in which you hold a stake creates new shares.

Rights issue

When a company’s shares are already traded on the stock market but it wants to raise more money, it may ask its current shareholders to stump up cash in return for extra shares. This is called a rights issue because the shareholders have the right to buy more shares if they want to.

It is only fair that existing shareholders are given the opportunity to buy because, ...

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