What is a Subscription Right?

A subscription right describes the right held by existing shareholders of a company which enables them to maintain their percentage ownership of a company by subscribing to a number of shares that will be issued by the company at an official issue date. 

Subscription is a clause in an option or merger agreement which is usually enforced through the use of rights offerings. With this right, existing investors or shareholders of a company can subscribe to a new issue at the market price or below. This right allows existing shareholders to retain an equal percentage ownership in the company. 

A subscription right is otherwise called "preemptive right," "subscription privilege," or "anti-dilution right."

How is a Subscription Right Used? 

In an option or merger agreement, a subscription right is a clause commonly included, this right guarantees an equal percentage ownership of a company by its existing shareholders or investors. Not all companies give subscription rights to their existing investors, although, there can be some level of dilution protection for shareholders in the charters of these companies. 

A subscription right allows a shareholder to buy an amount of a new issuance of stocks at or below the market price at a specified date before these stocks are offered in the secondary market. It is a strong form of dilution or merger protection, usually, shareholders or investors get notified of their subscription right through their brokers, custodians or via emails. 

Existing shareholders have up to 30 days before the new stocks are offered to the secondary markets.