This is when a company offers its shareholders the right to buy new shares for cheaper-than-the-market price. The more shares you already hold, the more new shares you’ll have the right to buy.
For example, let's say you own 100 shares in a company, and you're offered the right to buy one share for every five you own. That means you could buy 20 new shares. And as these shares are offered at £1.20 each – rather than the market price of £2 – you can buy them for a total of £24 (a discount of £16!).
As a shareholder you’ll usually have a couple of options with a rights offer:
Take up your rights in full – by pay the discounted price of the shares and increase your investment in the company. You won’t be charged anything for this.
Take no action – your rights will lapse and the offer passes. In some cases you'll get cash from your rights lapsing but not always.
If a company you have shares in announces a rights issue, you’ll be sent a corporate action notification with all the details of this.