New Delhi, April 25 -- Companies initiate several corporate actions to generate capital, increase profitability or conduct corporate restructuring, while usually keeping in mind the interests of the existing shareholders. One such corporate action is a rights issue.

A rights issue of equity shares is a corporate action through which a company aims to raise capital by offering the right to purchase additional shares to the existing shareholders at a discounted price in proportion to their shareholding.

For example, a shareholder owns 100 shares of a company with a face value of Rs.10 each. The company announces a rights issue in a 1:5 ratio. The discounted price of the new shares is set at Rs.6 per share. Hence, for every five shares at ...