Definition of stock right

privilege giving current stockholders the first right to buy shares in a new offering, thus maintaining their proportionate ownership interest; also called preemptive right. Suppose the investor owns 3% of XYZ Company. If the company issues 5000 additional shares, the investor may receive a stock rights offering-a chance to buy 3%, or 150 shares, of the new issue. This right enables the investor to purchase new common stock at a subscription price for a short time, usually no more than several weeks. The subscription price (exercise price) is lower than the public offering price of the stock. A single right is the privilege applicable to one old share of capital stock to purchase a certain number of shares of new capital stock. When the rights are exercised, the issuing company makes a journal entry to record the proceeds received, and the common shares are issued.